Chapter Nine
Overview of Advertising
Management: Messages,
Media, and Measurement
Chapter Nine Objectives
• Understand the magnitude of advertising
and the percentage of sales revenue
companies invest in this marcom tool.
• Recognize that advertising can be
extraordinarily effective but that there is
risk and uncertainty when investing in this
practice.
• Appreciate the various functions
advertising is capable of performing.
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Chapter Nine Objectives
• Explore the advertising management process
from the perspective of clients and their
agencies.
• Understand the functions agencies perform and
how they are compensated.
• Explore the issue of when investing in
advertising is warranted and when disinvesting is
justified.
• Examine advertising elasticity as a means for
understanding the contention that “strong
advertising is an investment in the brand-equity
bank.”
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Is Advertising Rocket Science?
“The truth is that
advertising is
harder than
rocket science.
It’s news when a
rocket launch
FAILS.
It’s news when an
ad campaign
launch
SUCCEEDS.”
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Advertising
Advertising is a paid, mediated form of
communication from an identifiable
source, designed to persuade the receiver
to take some action, now or in the future.
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Magnitude of Advertising
2005
$280 Billion
U.S.
Worldwide
$900 spent on
advertising for
every man,
woman, and child
in the United
States.
$550 Billion
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Some Top Spenders in U.S.
Advertising
Company
Advertising Dollars
General Motors
$3.43 Billion
Proctor & Gamble
$3.32 Billion
Time Warner
$3.1 Billion
Pfizer
$2.84 Billion
U.S. Government
$1.1 Billion
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Advertising-to-Sales Ratios
Average 2 to 10%
Ranging from
1.4%
To 30.7%
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Advertising
Effects
Are Uncertain
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Advertising Effects Are Uncertain
“If you want your brand to be fit, it’s got to
exercise regularly. When you get the
opportunity to go to the movies or do
something else instead of working out, you
can do that once in a while—that’s
[equivalent to] shifting funds into [sales]
promotion. But it’s not a good thing to do.
If you get off the regimen, you will pay for
it later.”
Jennifer Lawrence, P&G
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Advertising Functions
1. Informing
2. Influencing
3. Reminding and Increasing Salience
4. Adding Value
5. Assisting Other Company Efforts
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Informing
• Make consumers aware of new brands.
• Increase TOMA (Top of Mind Awareness)
• Teach new uses for existing brands (called
usage expansion advertising)
– Campbell’s soup for formal family dinners and
for breakfast
– Special K for afternoon or late-night snacking
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Influencing
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Reminding and Increasing Salience
• Making a brand more salient: enriching the
memory trace for a brand so that the
brand comes to mind in relevant choice
situations.
• Increasing the customer’s interest in
mature brands and the likelihood of
choosing brands that might have
otherwise not been chosen.
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Adding Value
• Three ways a company can add value to
its offerings:
– Innovating
– Improving quality
– Altering consumer perceptions
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Assisting Other Company Efforts
• Advertising may be used as a vehicle for
delivering coupons and sweepstakes
• Assisting sales representatives
• Pre-selling a company’s products by
introducing the product and legitimizing
salespeople’s claims.
• Augment the effectiveness of price deals.
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The
Advertising
Management
Process
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The Role of Advertising Agencies
• Three alternative ways to perform the
advertising function:
– Use an in-house advertising operation
– Purchase advertising services on an ad-asneeded basis
– Select a full-service advertising agency
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Top-25
U.S.
Advertising
Agencies in
Ad Revenue,
2003
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Alternative ways to perform
the advertising function
In-house advertising operation
• Necessitates employing an advertising
staff and absorbing the operation costs
• Unprofitable unless a company does a
large amount of continual advertising
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Alternative ways to perform
the advertising function
Full-service advertising agency
Advantages
Disadvantages
• In-depth knowledge and • Some control is lost
skills
• Larger clients are
• Obtaining negotiating
favored over small
muscle with the media
clients
• Coordinating advertising • Occasionally inefficient
and marketing efforts
in media buying
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Alternative ways to perform
the advertising function
A la carte
Advantages
Disadvantages
• Use services only when • Specialists approach
they are needed
client problems in a
stereotyped fashion
• Availability of highcaliber creative talent
• Lack of cost
accountability
• Potential cost
efficiencies
• Financial instability of
smaller boutiques
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Advertising Agency Organization
Creative Services
Media Services
• Develop advertising
copy and campaigns
• Copywriters,
production people,
and creative directors
Research Services
Account Management
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Advertising Agency Organization
Creative Services
Media Services
Research Services
• Selecting the best
advertising media
• Media planners
develop overall
media strategy
• Media buyers
procure the selected
media
Account Management
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Advertising Agency Organization
Creative Services
Media Services
Research Services
Account Management
• Study clients’
customers’ buying
habits, purchase
preferences, and
responsiveness
• Focus groups, mall
intercepts, acquisition
of syndicated research
data
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Advertising Agency Organization
Creative Services
Media Services
Research Services
Account Management
• Link the agency with
the client
• Act as liaisons so
that the client does
not need to interact
directly with several
different service
departments and
specialists
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Agency Compensation
•Commissions from media (15%)
•Reduced commission system(<15%)
Three
Sources
•Labor-based fee system
•Outcome-based
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Ad Investment Consideration
Profit=Revenue –Expenses
Revenue =Price X Volume
Volume = Trial + Repeat
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Which Position is More
Acceptable?
• The Case for Investing: • The Case for Disinvesting:
Firms often choose to
the belief that
advertising can increase reduce advertising
expenses either when a
profitability by
brand is performing well or
increasing sales
during economic
volume, enabling higher
recession. The belief is
selling prices, and thus
that an expense reduction,
increasing revenue
with all else held constant,
beyond the incremental
will result in increased
advertising expense.
profits.
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Elasticity
A measure of how responsive the
demand for a brand is to changes in
marketing variables such as price and
advertising.
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How to Increase Profit
1.
2.
3.
4.
Maintain status quo
Build Image Via Advertising
Grow Volume via Price Discounting
Increase Advertising and/or discount
prices
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Ad Spending
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