CHAPTER 6
Objective Setting
and Budgeting
© 2010 South-Western, a part of Cengage Learning
All rights reserved.
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Eighth Edition
Chapter Objectives
After reading this chapter you should be able to:
1. Understand the process of marcom objective setting and
the requirements for good objectives.
2. Appreciate the hierarchy-of-effects model and its relevance
for setting marcom objectives.
3. Comprehend the role of sales as a marcom objective and
the logic of vaguely right versus precisely wrong thinking.
4. Know the relation between a brand’s share of market
(SOM) and its share of voice (SOV) and the implications
for setting an advertising budget.
5. Understand the various rules of thumb, or heuristics, that
guide practical budgeting.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–2
Setting Marcom Objectives
• Marcom Objectives
 Goals that the various marcom elements aspire to
achieve individually or collectively during a scope of
time such as a business quarter or fiscal year
• Setting Marcom Objectives
 Is an expression of management consensus
 Guides the budgeting, message, and media aspects
of advertising strategy
 Provides standards against which results can be
measured
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–3
Marcom Objectives and Tools
Marcom Objective
Marcom Tool
Facilitate the successful introduction of new
brands
Brand naming and packaging, advertising, sales
promotions, word-of-mouth buzz generation, and
point-of-purchase (P-O-P) displays
Build sales of existing brands by increasing
the frequency of use, the variety of uses, or
the quantity purchased
Advertising and sales promotions
Inform the trade (wholesalers, agents or
brokers, and retailers) and consumers about
brand improvements
Personal selling and trade-oriented advertising
Create brand awareness
Advertising, packaging, and P-O-P messages).
Enhance a brand’s image
Brand naming and packaging, advertising, event
sponsorship, cause-oriented marketing, and
marketing-oriented public relations
Generate sales leads
Advertising
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–4
Marcom Objectives and Tools (cont’d)
Marcom Objective
Marcom Tool
Persuade the trade to handle the
manufacturer’s brands
Trade-oriented advertising and personal
selling
Stimulate point-of-purchase sales
Brand naming and packaging, P-O-P
messages, and external store signage
Increase customer loyalty
Advertising and sales promotions
Improve corporate relations with special
interest groups
Marketing-oriented PR
Offset bad publicity about a brand or generate
good publicity
Marketing-oriented PR
Counter competitors’ communications efforts
Advertising and sales promotions
Provide customers with reasons for buying
immediately instead of delaying a purchase
Advertising and sales promotions
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–5
Figure 6.1
Hierarchy of
Marcom Effects
The hierarchy of effects
metaphor implies that for
marketing communications to
be successful it must move
consumers from one goal to
the next goal.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–6
The Hierarchy of Marcom Effects
• Advancing Consumers from Unawareness to
Awareness
 Advertising is the most effective and efficient method
for quickly creating brand awareness.
• Creating an Expectation
 Product benefits from buying and experiencing a
brand
• Encouraging Trial Purchases
 Free samples, coupons, major price discounts and
rebate offers encourage trial behaviors
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–7
The Hierarchy of Marcom Effects (cont’d)
• Forming Beliefs and Attitudes
 Beliefs form the basis for developing an overall
attitude toward the brand.
 Beliefs and attitudes are mutually reinforcing
• Reinforcing Beliefs and Attitudes
 Marcom serves to reinforce consumer beliefs and
attitudes based on product usage experience
• Accomplishing Brand Loyalty
 Brands that continue to satisfy expectations foster
brand-loyalty which reduces price sensitivity
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–8
Figure 6.2
Advertisement
Illustrating
Hierarchy of
Marcom Effects
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–9
Figure 6.3
Criteria That Good Marcom Objectives Must Satisfy
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–10
Should Marcom Objectives Be Stated in
Terms of Sales?
• Objectives of Presales Communication
 To increase the target audience’s brand awareness
 To enhance the target ir attitudes toward the brand
 To shift their preferences from the competitors’ brand
• Sales Objectives
 The marcom objective literally is to increase sales by
a particular amount.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–11
Figure 6.4
The Logic of Vaguely Right versus Precisely Wrong Thinking
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–12
Should Marcom Objectives Be Stated
in Terms of Sales?
The Traditional
View
(Thesis)
Using sales response as the objective for a branded product’s
marcom effort is unsuitable for two reasons:
• A host of factors (e.g., advertising, sales promotions, and other
elements of the marcom program) can affect sales.
• Marcom’s effect on sales is typically delayed, or lagged.
The Heretical
View
(Antithesis)
• Marcom objectives should always be stated in terms of sales or
market share gains and that failure to do so is a cop-out
• Marcom’s purpose is to generate sales.
Accountability
Perspective
(Synthesis)
• Companies and their chief executives and financial officers are
demanding greater accountability from marcom programs
• Efforts should not also be made to assess whether marcom
affects pre-sales goals.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–13
Marcom Budgeting
• Budgeting in Theory
 The best (optimal) level of any investment is the level
that maximizes profits

Marginal revenue = Marginal cost, MR=MC

Marginal Cost = Change in total cost = TC
Change in quantity
Q

Marginal Revenue = Change in total revenue = TR
Change in quantity
Q
 Advertisers should increase their advertising
investment as long as it is profitable to do so
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–14
Marcom Budgeting
• Sales-to-Advertising Response Function
 The relationship between money invested in
advertising and the response, or output, of that
investment in terms of revenue generated
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–15
Table 6.1
Hypothetical Sales-to-Advertising Response Function
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–16
Budgeting in Practice
• Percentage-of-Sales Budgeting
 Brand advertising budget is a fixed percentage of past
(e.g., last year’s) or anticipated (e.g., next year’s)
sales volume.
 Criticism: budget becomes a function of sales

Sales = ƒ(Advertising) versus Advertising = ƒ(Sales)
• Objective-and-Task Budgeting
 Advertising decision makers specify what role they
expect advertising (or some other marcom element)
to play for a brand and then set the budget
accordingly.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–17
Budgeting in Practice (cont’d)
• Percentage-of-Sales Budgeting
 Brand advertising budget is a fixed percentage of past
(e.g., last year’s) or anticipated (e.g., next year’s)
sales volume.
 Criticism: budget becomes a function of sales
Sales = ƒ(Advertising) versus Advertising = ƒ(Sales)
• Objective-and-Task Budgeting
 Advertising decision makers specify what role they
expect advertising (or some other marcom element)
to play for a brand and then set the budget
accordingly.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–18
Steps in Objective-and-Task Budgeting
1. Establish specific marketing objectives to be
accomplished
2. Assess communication functions required to
accomplish overall marketing objectives
3. Determine advertising’s role in the total
communication mix
4. Establish specific measurable communication
response level goals required to achieve marketing
objectives.
5. Establish the budget based on estimates of
expenditures required to accomplish the advertising
goals.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–19
Budgeting in Practice (cont’d)
• Competitive Parity Method Budgeting
 Setting the marcom budget to match or exceed what
competitors are doing
 Share of Market (SOM)

The ratio of one brand’s revenue to total category revenue
 Share of Voice (SOV)

The ratio of a brand’s advertising expenditures to total
category advertising expenditures
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–20
Choosing Marcom Pathways
• Encoding Variability Hypothesis
 Contends that people’s memory for information is
enhanced when multiple pathways, or connections
are created between the object to be remembered
and the information about the object that is to be
remembered
• Enhancing Memory for Advertised Information
 The advertising message itself
 The advertising media in which the message is
placed
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–21
Table 6.2
Advertising Spend, SOV, and SOM
for Top-10 Wireless Phone Brands
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6–22
Table 6.3
Advertising Spend, SOV, and SOM for Top-10 Beer Brands
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–23
Figure 6.5
The SOV Effect and Ad Spending Implications
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–24
Budgeting in Practice (cont’d)
• The Affordability Method
 Spending on advertising only those funds that remain
after budgeting for everything else.
 Relegating marcom to a position of comparative
insignificance (vis-à-vis other investment options)
 Marcom are implicitly considered relatively
unimportant to a brand’s present success
 Challenge is to demonstrate that marcom do produce
results
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
6–25