7
Establishing Objectives
and Budgeting for the
Promotional Program
McGraw-Hill/Irwin
Copyright © 2012 McGraw-Hill Companies, Inc., All right reversed
Setting Objectives
• Obstacles to setting objectives
• Complex marketing situations
• Conflicting perspectives
• Uncertainty over resources
7-2
Value of Objectives
Measurement/Evaluation
Planning & Decision Making
Communications
Specific Objectives
7-3
Characteristics of Objectives
Specific
Attainable
Realistic
Measurable
Quantifiable
7-4
Sales vs. Communications Objectives
Sales
Objectives
• Primary goal is
increased sales
• Requires economic
justification
• Should produce
quantifiable results
Communications
Objectives
• Increased brand
knowledge, interest,
favorable attitudes
and image
• Immediate response
not expected
• Goal is creating
favorable
predispositions
7-5
Problems with Sales Objectives
Won’t work in isolation
Ad effects take time
Hard to determine precise
relationship between advertising
and sales
Offers little guidance to those
planning and developing the
promotional program
7-6
Factors Influencing Sales
Competition
Technology
The
economy
Advertising
& promotion
Product
quality
Distribution
Price
7-7
Where Sales Objectives are Appropriate
7-8
Where Sales Objectives are Appropriate
7-9
Test Your Knowledge
Which of the following statements about
communications objectives is true?
A) Sales goals are easily translated into
communications objectives.
B) It can be difficult to determine the relationship
between communications objectives and
sales performance.
C) Communications objectives cannot serve
as operational guidelines for planning,
executing, and evaluating promotional
programs.
D) Marketing managers often do not recognize
the value of setting communications objectives.
7-10
Communications Objectives
Conative
(behavioral)
Ads stimulate or
direct desires
Purchase
Purchase intentions
Affective (feeling)
Ads change attitudes
and feelings
Favorable attitudes
and image
Cognitive (thinking)
Ads provide
information and facts
Brand knowledge
and interest
Brand awareness
7-11
Creating an Image
7-12
Communications Effects Pyramid
5% Use
20% Trial
25% Preference
40% Liking
70% Knowledge/comprehension
90% Awareness
7-13
GfK Purchase Funnel
7-14
Problems With Communications Objectives
• Translating sales goals into
communications objectives
• What is adequate level of awareness,
knowledge, liking, preference, or
conviction?
• No formulas or guidelines
7-15
The DAGMAR Approach
Define
Advertising
Goals for
Measuring
Advertising
Results
Awareness
Comprehension
Conviction
Action
7-16
Characteristics of Objectives
Concrete,
measurable tasks
Well-defined
audience
Benchmark
measures
Specified
time period
7-17
Criticisms of DAGMAR
Problems with response hierarchy
Only relevant measure is sales
Costly and time consuming
Inhibits creativity
7-18
Advertising-Based View of Marketing
Ads
Acting on Consumers
7-19
Utilizing a Variety of Media
7-20
Balancing Objectives and Budgets
What we’re
willing and
able to spend
What we need
to achieve our
objectives
7-21
Establishing the Budget
How much
should we spend
on advertising
and promotion?
To whom should
we allocate the
monies?
7-22
Budget Decisions in a Down Economy
When times get tough, advertising and
promotional budgets are the first to be cut
7-23
Marginal Analysis
7-24
Weaknesses of Marginal Analysis
Sales are a
direct measure
of advertising
and promotions
efforts.
Sales are
determined
solely by
advertising and
promotion.
7-25
Test Your Knowledge
In marginal analysis, all of the following should be
considered except:
A) Sales
B) Fixed costs of advertising
C) Advertising expenditures and other
variable costs
D) Gross margin
E) Net worth
7-26
Budget Adjustments
Increase
Spending
If cost is less than the
marginal revenue generated
Hold
Spending
If the cost is equal to the
marginal revenue generated
Decrease
Spending
If the cost is more than the
marginal revenue generated
7-27
Sales Response Models
Advertising Expenditures
Initial Spending
Little Effect
Middle Level
High Effect
High Spending
Little Effect
B. S-Shaped Response
Function
Incremental Sales
Incremental Sales
A. Concave-Downward
Response Curve
Range A
Range B
Range C
Advertising Expenditures
7-28
Factors Influencing Advertising Budgets
Product
life cycle
Product
durability
Differentiation
Hidden product
qualities
Product
price
Purchase
frequency
7-29
Top-Down vs. Bottom-Up Budgeting
7-30
Top-Down Budgeting Methods
Affordable
Method
Return on
Investment
Competitive
Parity
Top
Management
Arbitrary
Allocation
Percentage
of Sales
7-31
Build-Up Approaches
• Objective and Task Method
• Define communications objectives to be
accomplished
• Determine specific strategies and tasks
needed to attain them
• Estimate costs associated with
performance of these strategies and tasks
7-32
Implementing the Objective and Task Approach
Isolate objectives
Determine tasks required
Estimate required expenditures
Monitor
Reevaluate objectives
7-33
Payout Planning
7-34
Quantitative Models
Computer Simulation
7-35
Allocating to IMC Elements
7-36
Other Budget Allocation Factors
• Budgeting Factors
• Client/agency policies
• Market size
• Market potential
• Market share goals
7-37
High
Low
Competitor’s
Share of Voice
Share of Voice Effect
Decrease–find a
defensible niche
Increase to defend
Attack with large
SOV premium
Maintain modest
spending premium
Low
High
Your Share of Market
7-38
Economies of Scale
Proposition I
Larger firms can support their brands with lower
relative advertising costs than smaller firms.
Proposition II
The leading brand in a product group enjoys
lower advertising costs per sales dollar than do
other brands.
Proposition III
There is a static relationship between advertising
costs per dollar of sales and the size of the
advertiser.
There is no evidence to support any of these!
7-39
Organizational Characteristics
• Factors that influence advertising and
promotion budgets
• The organization’s structure
• Power and politics
• The use of expert opinions
• Characteristics of the decision maker
• Approval and negotiation channels
• Pressure on senior managers to arrive
at the optimal budget
7-40