2) advertising management

AdvertisingManagement

Center for Management Studies

Bangalore

9 January 2008

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2

Session Take Aways

> Recap of Session 1

> How are 5Ms of Advertising significant?

> What is ADPRO & Brand Costing?

> What are the methods to budget for Advertising?

> Exercise on ADPRO

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5Ms of Advertising

> Mission – “Objective of Advertising”

Increase Demand/ITP by 20%

Increase Switchers by 50%

Create XYZ as TOMR brand for category ABC

> Message – “What is to be communicated”

Linked to the Key Insight / Key Brand Benefit

Campaign Theme

> Media – “Touch the consumer with the comm’n’

Maximising Reach the Target Audience of Brand

Using Effective IMC Media Mix to Communicate to TA

> Measurement – “Evaluation of Ad Strategy”

Post-Ad Research / Dipsticks

Sales/Market Information

> Money

Financial Budgeting of Advertising

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Spend of Money on Brand

>Non-AD Costs

Manufacturing

Logistics

Channel

Taxations

Overheads

>Advertising & Promotions (ADPRO)

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Non-Ad Costs

Raw Material

Packaging Mat

Processing

Excise

FreightSales Tax (Central and State)

CFA Commission

Stockist Margin

Trade Margin

= MRP

FACTORY LOGISTICS C & F AGENT TRADE

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Product Costing..Ctd

> MRP is Maximum Retail Price what the consumer pays

> PTR is Price to Retailer what the dukaandaar pays

> PTS is Price to Stockist what the Stockist Pays

> RM is Raw Material – ingredients of product

> PM is Packaging Material – the primary and secondary and tertiary coverings of product

> GC is Gross Contribution – what the company makes if it doesn’t spend any money on Advertising/Promotions

Head Rs.MRP 32.00PTR (15%) 29.09PTS (6%) 27.38Net PTS (8%) 25.35

PM Cost 1.70RM Cost 9.38Processing Charges 1.11Excise Duty 3.12CST@4% 0.61Total Purchase Value 15.92Freight 0.25

Addl. Sales Tax 0.16Total Variable Cost 16.33

Gross Contribution 9.02

GC % 36CSU 120

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Where does Advertising Fit

> ADPRO is Advertising and Promotion Expenses

> ADPRO can be broken into 2 Heads – Below The Line and Above the Line Expenses

> Gross Contribution – ADPRO = Net Contribution

> Net Contribution or ‘NC’ is the Money Company Makes on the Brand

> 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)

> So, How does one decide the ADPRO?

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Historical MethodHistorical Method

Task-Objective Method: Bottom-Up

Task-Objective Method: Bottom-Up

Percentage-of-Sales Method

Percentage-of-Sales Method

•Common budgeting method.•May be based on last year’s with a percentage increase.•Nothing to do with advertising objectives.

•Common budgeting method.•May be based on last year’s with a percentage increase.•Nothing to do with advertising objectives.

•Most common method.•Looks at objectives set for each activity, and determines the

cost of accomplishing each objective.

•Most common method.•Looks at objectives set for each activity, and determines the

cost of accomplishing each objective.

•Compares total sales with the total advertising (or marketing

communication) budget during a previous time period to

compute a percentage.

•Compares total sales with the total advertising (or marketing

communication) budget during a previous time period to

compute a percentage.

Competitive MethodsCompetitive Methods

All You Can AffordMethod

All You Can AffordMethod

•Relates the amount invested in advertising to the product’s

share of market.•Must understand share-of-mind.

•Relates the amount invested in advertising to the product’s

share of market.•Must understand share-of-mind.

•Allocates whatever is left over to advertising.•Companies who use this don’t value advertising very much.

•Allocates whatever is left over to advertising.•Companies who use this don’t value advertising very much.

ADVERTISING BUDGET METHODS

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All You Can afford> Spend all that a firm can “reasonably” allocate to

advertising after all other expenditures have been allocated.

> Logic

Ensures that an organization does not spend “too much” on advertising. Ad allocation is what is “left over.”

> Pros

Fiscally conservative.

> Cons

Assumes that advertising has no role to play in determining marketing results and profits.

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Percentage of Sales

> Set advertising budget as a percentage of

expected dollar sales

expected sales volume (also known as “case rate”)

> Pros

Relates advertising to the marketing mix by connecting it with sales.

Easy to calculate

Helps provide a benchmark for evaluating future budgets

> Cons

Wrong causal direction: assumes advertising is caused by sales, not vice versa

Ignores internal and external environmental factors

Unresponsive to dynamic situations, e.g.

- repositioning old brand

- well-established brand

- new brand launch

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Competitive Parity

> Adjust the advertising budget to match the levels established by competitors (either dollar amounts or percentage of sales).

> Logic

Follow the collective wisdom of industry.

> Pros Avoids advertising wars if there is strict adherence to competitive norms.

Takes into account the external realities of competitive activity in the marketplace.

> Cons No guarantee that a group of firms is spending at an optimum level, i.e., others may be as wrong as

you.

Which competitor(s) to match?

- Considerations vary substantially from firm to firm

Success of competitor may be due to non-advertising factors

Might ignore firm’s own marketing and ad objectives

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Objective and task method-1

>All simplistic decision rules are inadequate in satisfactorily setting advertising budgets.

>The alternative: Objective and Task Method

Not a simple decision rule

A managerial approach to budget setting

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Objective and task method-2>Steps

1. Set marketing objectives

2. Set marketing communication objectives (using a hierarchy model or other approach), e.g. awareness, percentage of brand switching, trial, etc.

3. Set media objectives (reach, frequency, GRPs, continuity, number of markets).

4. Calculate the costs associated with various media strategies. Total cost equals budget.

5. Refine budget for efficiency.

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Objective and Task Method -3

> Pros

“Logical” approach: incorporates advertising objectives

Can introduce intervening variables other than sales, using a hierarchy of effects model, e.g., awareness, brand preference, attitude change, etc.

> Cons

If objective is defined too ambitiously, one could lose sight of sales/ profit goals and impair profitability.

Does not guarantee against over-spending.

Task of defining objectives is not as simple as it sounds.

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Factors to Consider while making Ad Budget

Stage in the product life cycle

– A new product launch would have more support than established brand

Competition and clutter

– If your competitor is spending a lot or there are many competitors => Budget more

Market share

– Your Market Share Objective if its high => Higher Budget

Advertising frequency

– How visible you want to be on media?

Product differentiation

– Are you very communicating something very new or different from existing brand proposition for purpose of differentiation

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Budget Designing: Practical> A Practical Approach is to take a mix of all the methods:

> Set a realistic Bottom Line and Top Line Objective after studying the environment in which the brand operates – Category & Competition – Growths, Market Share, Size.

> 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.

> How much is the Total ADPRO Budget allocated by Brand Sales % of All Brands.

> Refine the ADPRO Budget and Reset the Objective.

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Brand Objective

> Top Line Objective & Bottom-Line Objective

> ADPRO Objective

2005-06 2006-07 2007-08

Plan Year Year After

Volume (cases) 10000 26400 42000Value (Rs.Lac) 150 396 630Adpro (Rs.Lac) 125 175 225Gross Cont. - Rs.Lacs 67.5 198 334GC - % 45 50 53Net Cont. - Rs.Lacs -57.50 23 109NC % -44.32 6.71 19.98

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ADPRO Breakup - Media Plan Eg.Qtr 1 Qtr 2 Half 1 Qtr 3 Qtr 4 Half 2 2002-03

Advertisement

Production Cost 0.0 22.0 22 0.0 0.0 0.0 22.0TV 0.0 0.0 0 40.0 40.0 80.0 80.0Print 0.0 0.0 0 0.0 0.0 0.0 0.0Radio 0.0 0.0 0 0.0 0.0Others 0.0 0.0 0 2.0 2.0 4.0 4.0Total AD ATL 0.0 22.0 22.0 42.0 42.0 84.0 106.0Promotion 0.0 0.0Display 0.0 0.0 0 0.0 0.0 0.0 0.0Hoarding & Signboard 0.0 0.0 0 0.0 0.0Printed Materials 0.0 0.0 0 2.0 2.0 4.0 4.0Trade Promotion (Own & Third Party) 0.0 0.0 0 5.0 4.0 9.0 9.0Market Research 3.0 3.0 6 0.0 0.0 0.0 6.0Consumer Promotion (Own) 0.0 0.0 0 0.0 0.0Consumer Promotion (Third Party) 0.0 0.0 0 0.0 0.0Others 0.0 0.0 0 0.0 0.0Total Promotion - BTL 3.0 3.0 6.0 7.0 6.0 13.0 19.0Total Adpro 3.0 25.0 28.0 49.0 48.0 97.0 125.0DIVISIONAL ADPRO 0.0 0.0TOTAL ADPRO 3.0 25.0 28.0 49.0 48.0 97.0 125.0

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Marketing Strategy to Advertising

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Process Explanation

1. Strategy: all promotional activity

2. Identifying & understanding the target audience: e.g

socio-economic group, age, gender, location, buying

frequency, lifestyle

3. Defining objectives:

(a) To create brand awareness, solution to a company’s

problem

(b) To stimulate trial

(c) To position products

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Process Explanation

4. Advertising budget:

(a) Percentage of sales’ method

(b) Matching competitors’ expenditures/ percentage of competitors’

sales figure

(c) Affordability

(d) Objective and task – budget depends on communication

objectives and the costs of the required tasks

5. Message decision:

An advertising message translate company’s basic selling propositions or

advertising platform into words, symbols and illustrations that are

meaningful to target audience

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Process Explanation

6. Media decisions: two key media decisions –

(a) Media class: e.g. television versus press

(b) Media vehicle: e.g. particular newspaper or magazine

Factors affecting media decision

(1) Size of the budget

(2) Competitive activity

(3) Views of the retail trade

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Process Explanation

7. Executing the campaign

8. Evaluating advertising effectiveness: measurement can

take place before, during and after campaign

(a) pre-testing

(b) Post-testing

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Group Exercise

>How would you allocate ADPRO for the below brand situations?

Group 1:- A Cash Cow Shampoo Brand for the Company but in Maturity Stage with flat growth

Group 2:- A Mobile Brand degrowing due to stiff competition and degrowing

Group 3:- A fast growing watch brand, growing at 50% annualy

Group 4:- A new to be launched 5-Star Hotel in Indore