1.
Advertising Management Center for Management Studies Bangalore 9 January 2008 2

2.
Session Take Aways <ul><li>Recap of Session 1 </li></ul><ul><li>How are 5Ms of Advertising significant? </li></ul><ul><li>What is ADPRO & Brand Costing? </li></ul><ul><li>What are the methods to budget for Advertising? </li></ul><ul><li>Exercise on ADPRO </li></ul>

3.
5Ms of Advertising <ul><li>Mission – “Objective of Advertising” </li></ul><ul><ul><li>Increase Demand/ITP by 20% </li></ul></ul><ul><ul><li>Increase Switchers by 50% </li></ul></ul><ul><ul><li>Create XYZ as TOMR brand for category ABC </li></ul></ul><ul><li>Message – “What is to be communicated” </li></ul><ul><ul><li>Linked to the Key Insight / Key Brand Benefit </li></ul></ul><ul><ul><li>Campaign Theme </li></ul></ul><ul><li>Media – “Touch the consumer with the comm’n’ </li></ul><ul><ul><li>Maximising Reach the Target Audience of Brand </li></ul></ul><ul><ul><li>Using Effective IMC Media Mix to Communicate to TA </li></ul></ul><ul><li>Measurement – “Evaluation of Ad Strategy” </li></ul><ul><ul><li>Post-Ad Research / Dipsticks </li></ul></ul><ul><ul><li>Sales/Market Information </li></ul></ul><ul><li>Money </li></ul><ul><ul><li>Financial Budgeting of Advertising </li></ul></ul>

4.
Spend of Money on Brand <ul><li>Non-AD Costs </li></ul><ul><ul><li>Manufacturing </li></ul></ul><ul><ul><li>Logistics </li></ul></ul><ul><ul><li>Channel </li></ul></ul><ul><ul><li>Taxations </li></ul></ul><ul><ul><li>Overheads </li></ul></ul><ul><li>Advertising & Promotions (ADPRO) </li></ul>

5.
Non-Ad Costs Raw Material Packaging Mat Processing Excise Freight Sales Tax (Central and State) CFA Commission Stockist Margin Trade Margin = MRP FACTORY LOGISTICS C & F AGENT TRADE

6.
Product Costing..Ctd <ul><li>MRP is Maximum Retail Price what the consumer pays </li></ul><ul><li>PTR is Price to Retailer what the dukaandaar pays </li></ul><ul><li>PTS is Price to Stockist what the Stockist Pays </li></ul><ul><li>RM is Raw Material – ingredients of product </li></ul><ul><li>PM is Packaging Material – the primary and secondary and tertiary coverings of product </li></ul><ul><li>GC is Gross Contribution – what the company makes if it doesn’t spend any money on Advertising/Promotions </li></ul>

7.
Where does Advertising Fit <ul><li>ADPRO is Advertising and Promotion Expenses </li></ul><ul><li>ADPRO can be broken into 2 Heads – Below The Line and Above the Line Expenses </li></ul><ul><li>Gross Contribution – ADPRO = Net Contribution </li></ul><ul><li>Net Contribution or ‘NC’ is the Money Company Makes on the Brand </li></ul><ul><li>Exercise of ‘Brand Planning’ carried out in beginning of the year where we plan out Sales Volumes (cases) and project the brand financials – It is a Profit and Loss Statement for 3-4 years (Breakeven) </li></ul><ul><li>So, How does one decide the ADPRO? </li></ul>

8.
<ul><li>ADVERTISING BUDGET METHODS </li></ul>Historical Method Task-Objective Method: Bottom-Up Percentage-of-Sales Method <ul><li>Common budgeting method. </li></ul><ul><li>May be based on last year’s with a percentage increase. </li></ul><ul><li>Nothing to do with advertising objectives. </li></ul><ul><li>Most common method. </li></ul><ul><li>Looks at objectives set for each activity, and determines the cost of accomplishing each objective. </li></ul><ul><li>Compares total sales with the total advertising (or marketing communication) budget during a previous time period to compute a percentage. </li></ul>Competitive Methods All You Can Afford Method <ul><li>Relates the amount invested in advertising to the product’s share of market. </li></ul><ul><li>Must understand share-of-mind. </li></ul><ul><li>Allocates whatever is left over to advertising. </li></ul><ul><li>Companies who use this don’t value advertising very much. </li></ul>

9.
All You Can afford <ul><li>Spend all that a firm can “reasonably” allocate to advertising after all other expenditures have been allocated. </li></ul><ul><li>Logic </li></ul><ul><ul><li>Ensures that an organization does not spend “too much” on advertising. Ad allocation is what is “left over.” </li></ul></ul><ul><li>Pros </li></ul><ul><ul><li>Fiscally conservative. </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>Assumes that advertising has no role to play in determining marketing results and profits. </li></ul></ul>

10.
Percentage of Sales <ul><li>Set advertising budget as a percentage of </li></ul><ul><ul><li>expected dollar sales </li></ul></ul><ul><ul><li>expected sales volume (also known as “case rate”) </li></ul></ul><ul><li>Pros </li></ul><ul><ul><li>Relates advertising to the marketing mix by connecting it with sales. </li></ul></ul><ul><ul><li>Easy to calculate </li></ul></ul><ul><ul><li>Helps provide a benchmark for evaluating future budgets </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>Wrong causal direction: assumes advertising is caused by sales, not vice versa </li></ul></ul><ul><ul><li>Ignores internal and external environmental factors </li></ul></ul><ul><ul><li>Unresponsive to dynamic situations, e.g. </li></ul></ul><ul><ul><ul><li>repositioning old brand </li></ul></ul></ul><ul><ul><ul><li>well-established brand </li></ul></ul></ul><ul><ul><ul><li>new brand launch </li></ul></ul></ul>

11.
Competitive Parity <ul><li>Adjust the advertising budget to match the levels established by competitors (either dollar amounts or percentage of sales). </li></ul><ul><li>Logic </li></ul><ul><ul><li>Follow the collective wisdom of industry. </li></ul></ul><ul><li>Pros </li></ul><ul><ul><li>Avoids advertising wars if there is strict adherence to competitive norms. </li></ul></ul><ul><ul><li>Takes into account the external realities of competitive activity in the marketplace. </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>No guarantee that a group of firms is spending at an optimum level, i.e., others may be as wrong as you. </li></ul></ul><ul><ul><li>Which competitor(s) to match? </li></ul></ul><ul><ul><ul><li>Considerations vary substantially from firm to firm </li></ul></ul></ul><ul><ul><li>Success of competitor may be due to non-advertising factors </li></ul></ul><ul><ul><li>Might ignore firm’s own marketing and ad objectives </li></ul></ul>

12.
Objective and task method-1 <ul><li>All simplistic decision rules are inadequate in satisfactorily setting advertising budgets. </li></ul><ul><li>The alternative: Objective and Task Method </li></ul><ul><ul><li>Not a simple decision rule </li></ul></ul><ul><ul><li>A managerial approach to budget setting </li></ul></ul>

13.
Objective and task method-2 <ul><li>Steps </li></ul><ul><ul><li>1. Set marketing objectives </li></ul></ul><ul><ul><li>2. Set marketing communication objectives (using a hierarchy model or other approach), e.g. awareness, percentage of brand switching, trial, etc. </li></ul></ul><ul><ul><li>3. Set media objectives (reach, frequency, GRPs, continuity, number of markets). </li></ul></ul><ul><ul><li>4. Calculate the costs associated with various media strategies. Total cost equals budget. </li></ul></ul><ul><ul><li>5. Refine budget for efficiency. </li></ul></ul>

14.
Objective and Task Method -3 <ul><li>Pros </li></ul><ul><ul><li>“ Logical” approach: incorporates advertising objectives </li></ul></ul><ul><ul><li>Can introduce intervening variables other than sales, using a hierarchy of effects model, e.g., awareness, brand preference, attitude change, etc. </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>If objective is defined too ambitiously, one could lose sight of sales/ profit goals and impair profitability. </li></ul></ul><ul><ul><li>Does not guarantee against over-spending. </li></ul></ul><ul><ul><li>Task of defining objectives is not as simple as it sounds. </li></ul></ul>

15.
Factors to Consider while making Ad Budget <ul><ul><li>Stage in the product life cycle </li></ul></ul><ul><ul><ul><li>A new product launch would have more support than established brand </li></ul></ul></ul><ul><ul><li>Competition and clutter </li></ul></ul><ul><ul><ul><li>If your competitor is spending a lot or there are many competitors => Budget more </li></ul></ul></ul><ul><ul><li>Market share </li></ul></ul><ul><ul><ul><li>Your Market Share Objective if its high => Higher Budget </li></ul></ul></ul><ul><ul><li>Advertising frequency </li></ul></ul><ul><ul><ul><li>How visible you want to be on media? </li></ul></ul></ul><ul><ul><li>Product differentiation </li></ul></ul><ul><ul><ul><li>Are you very communicating something very new or different from existing brand proposition for purpose of differentiation </li></ul></ul></ul>

16.
Budget Designing: Practical <ul><li>A Practical Approach is to take a mix of all the methods: </li></ul><ul><li>Set a realistic Bottom Line and Top Line Objective after studying the environment in which the brand operates – Category & Competition – Growths, Market Share, Size. </li></ul><ul><li>For the above Growths what would be the ADPRO Inputs required I.e Elasticity of Sales and Bottomline to ADPRO Increase, Market Feedback, Funds/Backends available, Determine the ADPRO. </li></ul><ul><li>How much is the Total ADPRO Budget allocated by Brand Sales % of All Brands. </li></ul><ul><li>Refine the ADPRO Budget and Reset the Objective. </li></ul>

17.
Brand Objective <ul><li>Top Line Objective & Bottom-Line Objective </li></ul><ul><li>ADPRO Objective </li></ul>

18.
ADPRO Breakup - Media Plan Eg.

19.
Marketing Strategy to Advertising

20.
Process Explanation <ul><li>1. Strategy: all promotional activity </li></ul><ul><li>2. Identifying & understanding the target audience: e.g </li></ul><ul><li>socio-economic group, age, gender, location, buying </li></ul><ul><li>frequency, lifestyle </li></ul><ul><li>3. Defining objectives: </li></ul><ul><li>(a) To create brand awareness, solution to a company’s </li></ul><ul><li>problem </li></ul><ul><li>(b) To stimulate trial </li></ul><ul><li>(c) To position products </li></ul>

21.
Process Explanation <ul><li>4. Advertising budget: </li></ul><ul><li>(a) Percentage of sales’ method </li></ul><ul><li>(b) Matching competitors’ expenditures/ percentage of competitors’ </li></ul><ul><li>sales figure </li></ul><ul><li>(c) Affordability </li></ul><ul><li>(d) Objective and task – budget depends on communication </li></ul><ul><li>objectives and the costs of the required tasks </li></ul><ul><li>5. Message decision: </li></ul><ul><li>An advertising message translate company’s basic selling propositions or </li></ul><ul><li>advertising platform into words, symbols and illustrations that are </li></ul><ul><li>meaningful to target audience </li></ul>

22.
Process Explanation <ul><li>6. Media decisions: two key media decisions – </li></ul><ul><li>(a) Media class: e.g. television versus press </li></ul><ul><li>(b) Media vehicle: e.g. particular newspaper or magazine </li></ul><ul><li>Factors affecting media decision </li></ul><ul><li>(1) Size of the budget </li></ul><ul><li>(2) Competitive activity </li></ul><ul><li>(3) Views of the retail trade </li></ul>

23.
Process Explanation <ul><li>7. Executing the campaign </li></ul><ul><li>8. Evaluating advertising effectiveness: measurement can </li></ul><ul><li>take place before, during and after campaign </li></ul><ul><li>(a) pre-testing </li></ul><ul><li>(b) Post-testing </li></ul>

24.
Group Exercise <ul><li>How would you allocate ADPRO for the below brand situations? </li></ul><ul><li>Group 1:- A Cash Cow Shampoo Brand for the Company but in Maturity Stage with flat growth </li></ul><ul><li>Group 2:- A Mobile Brand degrowing due to stiff competition and degrowing </li></ul><ul><li>Group 3:- A fast growing watch brand, growing at 50% annualy </li></ul><ul><li>Group 4:- A new to be launched 5-Star Hotel in Indore </li></ul>