Chapter Eight
Overview of
Advertising
Management
Chapter Eight Objectives
• Explain why advertising is an investment in
brand equity bank
• Describe the functions of advertising
• Understand the role for advertisement
objectives and the requirements for setting
good objectives
• Describe the hierarchy-of-effects model and
its relevance for setting advertising
objectives
Chapter Eight Objectives
• Explain the distinction between direct
and indirect advertising objectives
• Understand the role of sales as an
advertising objective and the logic of
“vaguely right versus precisely
wrong” thinking
Chapter Eight Objectives
• Understand the nature and importance
of advertising budgeting
• Explain the relation between a brand’s
share of market (SOM) and share of
voice (SOV)
• Explain the various rules of thumb, or
heuristics, that guide practical
advertising budgeting
Ad-Investment
Consistent investment spending is
the key factor underlying
successful advertising.
Arguments for Investing in Advertising
• Investment in advertising requires
that incremental revenue >
advertising expense
Arguments for Disinvesting in
Advertising
• Decreased expenses in advertising
mean increased profits (everything
else held equal)
Investment
in the Brand Equity Bank
• “Strong advertising represents a
deposit in the brand equity bank.”
• Strong- that is, different, unique,
clever, memorable
Advertising Functions
Informing
Persuading
Reminding
Adding Value
Assisting Other Company Efforts
Advertising Functions
Informing
• Makes consumers aware, educates them
about the features and benefits, and
facilitates the create the creation of
positive brand images
• Facilitates the introduction of new brands
and increases demand for existing brands
• Performs another information role by
teaching new uses for existing brands
(Usage expansion advertising)
Advertising Functions
Persuading
• Persuades customers to try
advertised products and services
• Primary demand- creating demand
for an entire product category
• Secondary demand- the demand for
a specific company’s brand
Persuading
Gillette MACH3
Advertising Functions
Reminding
• Keeps a company’s brand fresh in the
consumer’s memory
• Influences brand switching by
reminding consumers who have not
recently purchased a brand that the
brand is available and that it
possesses favorable attributes
Advertising Functions
Adding Value
• Three basic ways by which companies
can add value
» innovating
» improving quality
» altering consumer perceptions
• Advertising adds value to brands by
influencing consumers’ perceptions
Advertising Functions
Assisting Other Company Efforts
• Advertising is just one member of the
marketing communications team
• Sometimes, an assister that facilitates
other company efforts in the marketing
communications process
The Advertising Management Process
Advertising Strategy
• Setting Objectives
•Formulating Budgets
•Creating Ad messages
•Selecting Ad Media and Vehicles
Strategy Implementation
Assessing Ad Effectiveness
Setting Advertising Objectives
• Expression of management consensus
• Guides the budgeting, message, and
media aspects of advertising strategy
• Provide standards against with results
can be measured
The Hierarchy of Effects
 The hierarchy of effects metaphor implies that
for advertising to be successful it must move
consumers from one goal to the next goal
A Hierarchy Model of
How Advertising Works
The Hierarchy of Effects
The hierarchy
of effects
Setting Good Advertising Objectives
• Include a precise statement of who, what,
and when
• Be quantitative and measurable
• Specify the amount of change
• Be realistic
• Be internally consistent
• Be clear and put it in writing
Sales Volume as
an Advertising Objective
Traditional View
• Sales volume is the consequence of
a host factors in addition to
advertising
• Effect of advertising is delayed
Sales Volume as
an Advertising Objective
Heretical View
• Advertising’s purpose is to generate
sales
• Sales measures are “vaguely right”
The Logic of Vaguely Right Vs.
Precisely Wrong Thinking
Vaguely
Measurement
Accuracy
Issue
Right
Versus
Precisely
Wrong
Choice of
Objective
Issue
Advertising Budgeting in Theory
• The best(optimal) level of any investment is
the level that maximizes profits(MR=MC)
• Advertisers should continue to increase their
advertising investment as long as it is
profitable to do so
MC
MR
= (Change in total cost) = (Change in total Revenue)
(Change in quantity)
(Change in quantity)
= TC/Q
= TR/Q
Budgeting Considerations
in Practice
• What is the Ad objective?
• How much are competitors spending?
• How much money is available?
Budgeting Methods
• Percent-of-Sales Budgeting
• Objective-and-Task Method
• Competitive Parity Method
(match competitors method)
• Affordability Method
Percentage-of-Sales Budgeting
• A company sets a brand’s
advertising budget by simply
establishing the budget as a fixed
percentage of past or anticipated
sales volume
• Criticized as being illogical
Sales=f(Advertising) (o)
Advertising=f(Sales) (x)
Objective-and-Task Method
• The most sensible and defendable
advertising budgeting method
• Specify what role they expect
advertising to play for a brand and then
set the budget accordingly
The Competitive Parity Method
• Sets the ad budget by basically
following what competitors are doing
Affordability Method
• Only the funds that remain after
budgeting for everything else are
spent on advertising
• Only the most unsophisticated and
impoverished firms
• However, affordability and
competitive considerations influence
the budgeting decisions of all
companies