Establishing Objectives and Budgeting for the Promotional Program
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Establishing Objectives and Budgeting for the Promotional Program
- 1. Establishing Objectives and Budgeting for the Promotional Program GROUP O AJAY R MUDIT AGARWAL PADMA N RAHUL BARWE SHIRISH JAIN UMANG KULSHRESTHA © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
- 2. Value of Objectives Focus & Focus & Objectives Coordination Coordination Plans & Plans & Decisions Decisions Measurement & Control
- 3. Characteristics of Objectives Attainable Attainable Attainable Realistic Realistic Realistic Measurable Measurable Measurable Objectives Not Mutually Exclusive Specific Specific Specific
- 4. Marketing Versus Communications Objectives Marketing Marketing target audience Objectives • Focused on a specific Objectives appropriate messages • Designed to deliver •• Generally stated in the Generally stated in the communications tasks firm’s marketing plan firm’s marketing plan • Based on particular •• Achieved through the Achieved through the marketing objectives overall marketing plan overall marketing plan • More narrow than •• Quantifiable, such as Quantifiable, such as Vs. overall marketing plan sales, market share, ROI sales, market share, ROI • Derived from the •• To be accomplished in a To be accomplished in a given period of time given period of time Objectives •• Must be realistic and Must be realistic and Communications attainable to be effective attainable to be effective
- 5. Many Different Factors Affect Sales Sales Product Product Product Promotion Promotion Promotion Competition Competition Competition Quality Quality Quality The Distribution Distribution Distribution Technology Technology Technology Price Policy Price Policy Price Policy Economy
- 6. Advertising and Movement Toward Action Conative Purchase Point of purchase Retail store ads, Deals Realm of motives. “Last-chance” offers Price appeals, Testimonials Ads stimulate or direct desires. Conviction Preference Competitive ads Affective Argumentative copy Realm of emotions. Ads change attitudes Liking “Image” copy Status, glamour appeals and feelings Knowledge Announcements Descriptive copy Classified ads Cognitive Slogans, jingles, skywriting Realm of thoughts. Ads provide Awareness Teaser campaigns information and facts.
- 7. Image Ads Can Have a Strong Effect on Preference
- 8. Pyramid of Communications Effects 5% Use l ia Tr 20% Trial % 20 e 25% Preference iv g n at in Lik Co 40% Liking % 40 ss 70% Knowledge ne e ar e ctiv 90% Awareness Aw fe % Af 90
- 9. The DAGMAR Approach Define Advertising Goals for Measuring Advertising Results
- 10. DAGMAR Difficulties Legitimate Problems Attitude - Behavior Attitude - Behavior Attitude - Behavior Response Hierarchy Response Hierarchy Response Hierarchy Relationship Relationship Relationship Problems Problems Problems Questionable Objections Sales Objectives Sales Objectives Sales Objectives Costly and Costly and Inhibits Creativity Costly and Impractical Needed Needed Needed Impractical Impractical
- 11. Advertising-Based View of Communications Advertising Through Media Acting on Consumers
- 12. Balancing Objectives and Budgets What we’re What we need willing and to achieve our able to spend objectives Dollars Goals
- 13. BASIC Principle of Marginal Analysis Increase Increase If the increased cost is less If the increased cost is less Spending Spending than the incremental than the incremental (marginal) return (marginal) return If the increased cost is equal If the increased cost is equal Hold Hold to the incremental (marginal) to the incremental (marginal) Spending Spending return. return. If the increased cost is more If the increased cost is more Decrease Decrease than the incremental than the incremental Spending Spending (marginal) return (marginal) return
- 14. Assumptions for Marginal Analysis Sales are the result of Sales are the principal advertising and objective of advertising promotion, and nothing and promotion else
- 15. Advertising Expenditures Incremental Sales Initial Spending Little Effect Range A Function Middle Level B. S-Shaped Response High Effect Range B Incremental Sales High Spending Little Effect Response Curve Advertising Expenditures Range C Downward A. Concave- Advertising Sales/Response Functions
- 16. Top-Down Budgeting Top Management Sets the Spending Limit Top Management Sets the Spending Limit The Promotion Budget Is Set to Stay Within The Promotion Budget Is Set to Stay Within the Spending Limit the Spending Limit
- 17. Top-Down Budgeting Methods Competitive Competitive Parity Parity Arbitrary Arbitrary Percentage Percentage Allocation Allocation Top of Sales of Sales Top Management Management Return on Return on Affordable Affordable Investment Investment Method Method
- 18. Bottom-Up Budgeting Total Budget Is Approved by Total Budget Is Approved by Top Management Top Management Cost of Activities are Budgeted Cost of Activities are Budgeted Activities to Achieve Objectives Activities to Achieve Objectives Are Planned Are Planned Promotional Objectives Are Set Promotional Objectives Are Set
- 19. Objective and Task Method Establish Objectives Establish Objectives (create awareness of new product among (create awareness of new product among 20 percent of target market) 20 percent of target market) radio and local newspapers) radio and local newspapers) (advertise on market area television and (advertise on market area television and Determine Specific Tasks Determine Specific Tasks Determine Specific Tasks Determine Specific Tasks (advertise on market area television and (advertise on market area television and radio and local newspapers) radio and local newspapers) promotions, etc…) promotions, etc…) (determine costs of advertising, (determine costs of advertising, Estimate Costs Associated with Tasks Estimate Costs Associated with Tasks
- 20. Ad Spending and Share of Voice Share of Voice Decrease–find a Decrease–find a Competitor’s High Increase to Defend Increase to Defend Defensible Niche Defensible Niche Attack With Large Attack With Large Maintain Modest Maintain Modest SOV Premium Spending Premium Low SOV Premium Spending Premium Low High Your Share of Market
Editor's Notes
- Chapter Seven Establishing Objectives and Budgeting for the Promotional Program © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
- Relation to text This slide relates to material on pp. 195-196 of the text. Summary Overview This chapter examines the nature and purpose of objects and the role they play in guiding the development, implementation, and evaluation of an IMC program. The value of setting objectives include the following: Focus and coordination – setting objectives facilitates the coordination of the various groups working on the campaign. The advertising and promotional program must be coordinated within the company, inside the ad agency, and between the two as well as with any other communication agencies involved with the campaign Planning and decision-making – specific promotional objectives guide the development of the integrated marketing communications plan. They also guide decisions regarding strategic and tactical issues such as creative options, media selection, and budget allocation. Measurement and control – objectives provide a benchmark against which the success or failure of the promotional campaign can be measured. Use of this slide This slide can be used to introduce the importance of setting advertising and promotion objectives. Specific objectives are needed to coordinate and guide the development of the promotional program, as well as provide a benchmark against which performance can be measured and evaluated.
- Relation to text This slide relates to material on pp. 196-197 of the text. Summary Overview This slide summarizes the characteristics of good objectives and shows that they should be: Realistic Attainable Measurable Specific Not mutually exclusive Use of this slide This slide can be used to discuss the various characteristics of good communication and promotional objectives. While the task of setting good objectives can be complex and difficult, it must be done properly as specific objectives are the foundation upon which all advertising and promotional decisions are made.
- Relation to text This slide relates to material on pp. 196-198 of the text which discusses marketing and communication objectives. Summary Overview Communications objects are not the same as marketing objectives. This slide summarizes the differences between the two. Marketing objectives Stated in the firm’s marketing plan Statements of what is to be accomplished by the overall marketing plan Measurable outcomes such as sales, market share, ROI over a specific period of time Must be realistic and attainable Communications objectives Derived from the overall marketing plan Generally more narrow than marketing objectives Based on the particular communications task required to deliver the appropriate messages to the target audience Are focused on a specific target audience Use of this slide This slide can be used to discuss the differences between marketing objectives and communications objectives. Communications objectives evolve from the companies overall marketing plan and should be based on the marketing and promotional issues facing the company or brand.
- Relation to text This slide relates to material on pp. 198-202 of the text. Summary Overview Many marketers take the position that the basic reason a firm spends money on advertising and promotion is to sell its products. As such, sales or other sales related measures are often used as communications objective. One of the difficulties of using sales as a communication objective is that sales are a function of many factors, not just advertising and promotion. This chart shows the various factors that can affect sales which include: advertising and promotion competition product quality distribution technology price policy the economy Use of this slide This slide can be used to discuss marketers’ use of sales as communication objectives. While it is generally accepted that advertisers need to think in terms of how the promotional program will influence sales, the success or failure of the advertising campaign cannot always be based on sales. You can use this slide to discuss the various factors that can influence sales other than advertising and promotion.
- Relation to text This slide relates to material on pp. 202-203 and figure 7-2 of the text. Summary Overview This slide shows a chart of the various steps in the hierarchy of effects model of advertising developed by Lavidge and Steiner. The model shows the various steps the consumer moves through from awareness to purchase, along with examples of various types of promotion or advertising relevant to each step. As consumers move through the three stages they become closer to making a purchase, which is the ultimate goal of marketers. Use of this slide This slide can be used to explain the hierarchy of effects model and show the various steps consumers move through from awareness to purchase. The examples of the various types of promotion or advertising relevant to the various steps are included to show the promotional programs that can influence the consumers’ movement. This model is often used as a basis for communication objectives by agencies and marketers.
- Relation to text This slide relates to material on pp. 202-205 and the opening vignette to Chapter 7 Summary Overview This slide shows an ad for Waterford Crystal which is a brand with an outstanding image for product quality. Advertising is used by Waterford to reinforce its brand image and reputation for outstanding product quality. However, as discussed in the opening vignette to the chapter, Waterford’s brand image is due in large part to the quality of the product rather than heavy advertising. Use of this slide This slide can be used to discuss the role advertising plays for high quality products such as Waterford Crystal. As discussed in the opening vignette, there is more to creating a “quality brand” than advertising. However, advertising can play an important role in creating brand awareness and reinforcing a quality image.
- Relation to text This slide relates to material on pp. 203-205 and Figure 7-3 of the text. Summary Overview This slide is a chart of the communications effect pyramid. It shows that advertising and promotion perform communications task in the same way a pyramid is built, by first accomplishing the lower-level objectives such as awareness and knowledge. Subsequent tasks involve moving consumers who are aware of or knowledgeable about the product or service to higher levels in the pyramid. The initial stages, at the base of the pyramid, are easier to accomplish than those toward the top, such as trial and repurchase or regular use. Thus, the percentage of prospective customers will decline as they move up the pyramid. Use of this slide This slide can be used to discuss the effects of communications. Marketing communications such as advertising are designed to move customers from awareness to purchase, but marketers are aware that this will not happen immediately. As such, advertisers set their communications objectives in relation to where the target audience lies with respect to the various blocks of the pyramid. An example of how the communications effects pyramid can be used to set objectives is provided in Figure 7-4 of the text.
- Relation to text This slide relates to material on pp. 206-211 of the text which discusses the DAGMAR approach to setting objectives. Summary Overview In 1961, Russell Colley prepared a report for the Association of National Advertisers titled Defining Advertising Goals for Measured Advertising Results . Colley developed a model for setting advertising objectives and measuring the results of an ad campaign that became known by its acronym. The DAGMAR model has become one of the most influential approaches to advertising planning and setting advertising objectives. Use of this slide This slide can be used to introduce the DAGMAR model and the value of setting specific communications objectives. The DAGMAR approach to setting objectives has had considerable influence on the advertising planning process as many promotional planners use this model as a basis for setting objectives and assessing the effectiveness of their promotional campaigns.
- Relation to text This slide relates to material on pp. 208-209 of the text which discussed problems associated with DAGMAR. Summary Overview While DAGMAR has contributed to the advertising planning process, a number of problems have led to questions regarding its value as a planning tool. Some of these are: Response hierarchy problems – a major criticism of the model is its reliance on the hierarchy of effects model. Consumers do not always go through this sequence of steps before making a purchase (alternative response models have been developed as part of DAGMAR MOD II) Attitude – behavior relationship – attitudes do not always precede behavior. There may be situations where behavior precedes attitude change. Sales objectives – some argue that sales is the only relevant measure of advertising and have little tolerance for the use of communication objectives Costly and impractical – DAGMAR takes time and money to conduct research and establish benchmarks. Many critics argue that it is only practical for large companies with research budgets Inhibition of creativity – DAGMAR imposes too much structure on those responsible for creating the advertising and restricts their creativity by making them accountable to quantitative measures of performance Use of this slide This slide can be used to discuss the drawbacks of the DAGMAR model. Although it is a valuable tool in that it suggests a logical process for advertising and promotional planning, it is not totally accepted by everyone for some of the reasons mentioned. Recent studies have shown that many advertisers and agencies fail to follow some of the basic principles of the model and do not use appropriate objectives for determining success.
- Relation to text This slide relates to material on pp. 210-211 and Figure 7-7 of the text. Summary Overview This slide is a chart showing a traditional advertising-based view of marketing communications. This approach is based on a hierarchical response model and considers how marketers can develop and disseminate advertising messages to move consumers along an effects path. It is also known as inside-out planning . The focus is on what the marketer wants to say, when the marketer wants to say it, about things the marketer believes are important about the brand, and in the media forms the marketer wants to use. Use of this slide This slide can be used to discuss the traditional advertising-based view of marketing communications. The focus of this planning process is communicating with the target audience by using the traditional hierarchy of response model with the goal of moving the consumer along the pathway towards purchase. An alternative to this approach is called zero-based communications planning which involves determining what tasks need to be done and which marketing communications functions should be used and to what extent.
- Relation to text This slide relates to material on pp. 211-213 of the text. Summary Overview This slide introduces the advertising budgeting process. Two questions advertisers begin with when establishing the budget are: What are we willing and able to spend? What do we need to spend to achieve our objectives? No organization has an unlimited budget to spend on advertising, so objectives must be set with the budget in mind. Use of this slide This slide can be used as an introduction to the budgeting process. It can also be used to discuss the issues concerning what marketers are willing and/or able to spend on advertising and promotion and what they need to spend to achieve their objectives.
- Relation to text This slide relates to material on pp. 213-214 of the text. Summary Overview This slide summarizes the basic principles of marginal analysis. Some logical assumptions from the graph regarding advertising spending are: Increase spending if the increased cost is less than the incremental return Hold spending if the increased cost is equal to the incremental return Decrease spending if the increased cost is more than the incremental return Use of this slide This slide can be used to further explain the use of marginal analysis for budgeting purposes. Some basic principles of when advertising spending should be changed are shown.
- Relation to text This material relates to material on pp. 213-214 of the text. Summary Overview This slide summarizes two basic assumptions of marginal analysis that must be considered when using the concept to determine the advertising budget. These assumptions are as follows: Sales are a direct result of advertising and promotional expenditures and nothing else. Many marketers feel that it is very difficult to measure the influence of advertising on sales which limits the value of marginal analysis. Advertising and promotion are rarely the only factors that are responsible for sales as other elements of the marketing mix including product/service factors, price, and distribution all contribute to the success of the company. Sales are the principal objective of advertising and promotion . Marginal analysis assumes that sales are the principal objective of advertising and promotion. As discussed in this chapter, marketers can have a variety of other objectives for their advertising and promotion programs. Use of this slide This slide can be used to show the basic assumptions related to the use of marginal analysis as an advertising budgeting method. Because of the difficulties associated with using marginal analysis it is seldom used as a basis for budgeting (except for direct response advertising).
- Relation to text This slide relates to material on page 214-215 and Figure 7-10 of the text. Summary Overview This slide show two models of the advertising/sales response function. The relationship between advertising and sales has been the topic of much research and discussion designed to determine the shape of the response curve. Almost all advertisers subscribe to one of two models of the advertising/sales response function: The concave-downward function which assumes that the effects of advertising spending follow the microeconomic law of diminishing returns. That is, as the amount of advertising increases, its incremental value decreases. The logic is that those with the greatest potential to buy will likely act on the first (or earliest) exposures, while those less likely to buy are not likely to change a s a result of the advertising. The S-shaped response function which assumes that initial outlays of the advertising budget have little impact (range A). However, after a certain budget level has been reached (range B) advertising and promotional efforts begin to have an effect, as additional increments of expenditures result in increased sales. This incremental gain continues only to a point. When advertising expenditures enter range C, incremental spending will have little additional impact on sales. Use of this slide This slide can be used to explain the two models of the advertising sales/response function. Although there are some weaknesses associated with these models of the sales/response function, they do provide managers with a theoretical basis of how the relationship between advertising spending and sales might work.
- Relation to text This slide relates to material on pp. 217-224 of the text. Summary Overview This slide outlines the top-down approach to budgeting. In this approach the budgetary amount is established by management and then the monies are allocated to the various departments. The goal of this method is usually to insure that the promotional budget is set to stay within limits set by top management. When this approach to budgeting is used spending levels are essentially predetermined and have no true theoretical basis. Use of slide This slide can be used to introduce the top-down approach to setting the advertising and promotion budget. Specific top down methods are shown in the next slide.
- Relation to text This slide relates to material on pp. 217-224 of the text. Summary Overview This slide shows the various top-down budgeting methods. They are: Arbitrary allocation – budget is set by management based on what is felt to be necessary. No theoretical basis underlies the budgeting process. Competitive parity – setting budgets on the basis of what competitors spend. Usually accomplished by matching the same percentage of sales expenditures as competitors. Percentage of sales – advertising and promotion budget is based on the sales of product. Determined by either taking an amount based on a percentage of sales revenue sold or anticipated revenue from sales. Affordable method – the firm determines the amount to be spent on the various areas such as production and operations and then allocates what is left to advertising and promotion. Return on investment – advertising and promotions are considered investments, and the budget appropriation is based on the returns the company feels it will generate from advertising Use of this slide This slide can be used to discuss the various top-down budgeting methods. While these methods have their advantages and disadvantages, they are popular because of tradition and top managements desire for control. Studies have shown the percentage of sales and arbitrary method to be most popular.
- Relation to text This slide relates to material on pp. 224-227 and Figure 7-13 of the text. Summary Overview The slide outlines the bottom-up approach to budgeting. This approach is based on the consideration of a firm’s communications objectives before the budget is set. Once the communication objectives are determined a budget is developed to attain these goals. The specific steps of this approach are: Promotional objectives are set Activities to achieve objectives are planned Cost of activities are budgeted Top management approves total budget Use of this slide This slide can be used to introduce a bottom-up approach to budgeting. The main advantage of using this approach is that the budget is driven by the objectives to be attained rather than some predetermined amount management is willing to spend.
- Relation to text This slide relates to material on pp.224-225 and Figure 7-18 of the text. Summary Overview This slide outlines the three steps of the objective and task method of budgeting. This method reflects a bottom-up approach to budgeting and involves the following steps: Establishing objectives – specific communication objectives to be achieved are established Determine specific tasks – determine the specific tasks needed to accomplish the communication objectives. May include advertising in various media, developing programs involving sales promotions and/or other elements of the promotional mix. Estimate costs associated with tasks – determining what it will cost to perform the specific tasks that must be performed to achieve the objectives. Use of this slide This slide can be used to discuss the objective and task method of setting the advertising and promotion budget. The main advantage of using this approach is that the budget is driven by the objectives to be attained rather than some predetermined amount management is willing to spend. A disadvantage of this method is the difficulty in determining which tasks will be required and the costs associated with each.
- Relation to text This slide relates to material on pp. 231-232 and Figure 7-24 of the text. Summary Overview This chart outlines strategies for advertising spending based on a company or brand’s market share and a competitor’s share-of-voice (SOV). Share-of-voice refers to a company or brand’s percentage of the advertising messages compared to all of the advertising messages for that product or service. Recommended ad spending strategies shown in the chart are based on different market share and share of voice scenarios and suggest the following: When market share is high and competitor’s SOV is high, increase to defend market share When market share is high and competitor’s SOV is low, maintain a modest spending premium to hold market share When market share is low and a competitor’s SOV is high, decrease overall spending and find a defensible market niche When market share is low and competitor’s SOV is low, attack with a large SOV premium to increase market share Use of this slide This slide can be used to discuss the various ad spending strategies available to marketers given their market share and competitor’s share-of voice. The marketer has several options available given the varying circumstances and competitive situation.