Chap 012

1. Imperatives for Market-Driven Strategy

2. Markets and Competitive Space

3. Strategic Market Segmentation

4. Strategic Customer Relationship Management

5. Capabilities for Learning about Customers and Markets

6. Market Targeting and Strategic Positioning

7. Strategic Relationships

8. Innovation and New Product Strategy

9. Strategic Brand Management

10. Value Chain Strategy

11. Pricing Strategy

12. Promotion, Advertising and Sales Promotion

Strategies

13. Sales Force, Internet, and Direct Marketing Strategies

14. Designing Market-Driven Organizations

15. Marketing Strategy Implementation And Control

Strategic Marketing

CHAPTER 12

Promotion, Advertising, and Sales Promotion Strategies

Promotion Strategy

Advertising Strategy

Sales Promotion Strategy

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

12-3

PROMOTION STRATEGY

The Composition of Promotion Strategy

Developing Promotion Strategy

Communications Objectives

Deciding the Role of the Promotion Components

Determining the Promotion Budget

Promotion Component Strategies

Integrating and Implementing the Promotion Strategy

Effectiveness of Promotion Strategy

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Promotion Strategy:Promotion Strategy:

planning, implementing, andplanning, implementing, and

controlling an organization’scontrolling an organization’s

communications to its customers communications to its customers

And other target audiences.And other target audiences.

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PromotionComponents

PublicRelations

DirectMarketing

SalesPromotion

PersonalSelling

Advertising

Interactive/Internet Marketing

Composition of Promotion Strategy

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U. S. Annual Expenditures (billions)

0

$200

$400

$600

Personal Selling

Advertising

Sales Promotion

12-7

INTERNET FEATURE

Brand Advertising On-Line Has Taken Off

SEARCH WORKSGoogle and Yahoo! Have demonstrated the power of the Web by using customers’ search queries to connect them with advertisers.CUSTOMERS ARE ONLINEMore than half of American households have always-on Net connections. And the Web reaches millions at the office. The Big Three portals—Yahoo, AOL, and MSN—reach a combined 50 million a day–-twice the TV audience of a World Series game.VIDEO ROCKSThe adoption of broadband, which can handle videos, lets advertisers put TV-like ads online. Longer spots by BMW and Adidas have reached cult status. As demand for video soars, portals sell choice slots in advance, much like TV’s up-front sales.FEEDBACK IS INSTANTMarketers and online publishers have tools to track an ad’s performance in real time allowing them to make quick adjustments if customers aren’t clicking. This turns the Net into a vast marketing lab. And as video grows, it becomes a test bed for TV ads.CUSTOMERS LEAVE TRAILSIt was an empty promise during the dot-com days, but now advertisers have the technology to follow customers, click by click, and to hit them with relevant ads. The upshot? No wasted money peddling dog food to cat owners.

Source: Stephen Baker, “The On-Line Ad Surge,” BusinessWeek, November 22, 2004, 79.

12-8

COMMUNICATIONOBJECTIVES

ROLE OF PROMOTIONCOMPONENTS

PROMOTIONBUDGET

PROMOTION COMPONENTSTRATEGIES

Coordinationwith Product,Distribution,and PriceStrategies

DESIGNING THE PROMOTION STRATEGY

Advertising Sales Promotion

Public Relations

Personal Selling

Direct Marketing

Interactive/ Internet Marketing

MARKET TARGETING AND POSITIONING STRATEGIES

INTEGRATE AND IMPLEMENT PROMOTION COMPONENT STRATEGIES

EVALUATE EFFECTIVENESS OF PROMOTION STRATEGY

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Illustrative Communications Objectives

Need Recognition

Finding Buyers

Brand Building

Evaluation of Alternatives

Decision to Purchase

Customer Retention

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Deciding the Role of the Promotion Components

Expected contribution for each of the promotion components.

Which communication objective(s) will be the responsibility of each component?

What part of the budget will go to each component?

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Factors Guiding the Role Assigned to Each Component

Market Target(s)

Desired Positioning

Role of Promotion in Positioning

Product Characteristics

Stage of Life Cycle

Situation Specific Factors

12-12

Determining the Promotion Budget

Percent of Sales

Follow the Competition

Objective and Task

All You Can Afford

Budgeting Approaches

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Percent of Sales Fixed percent of sales, often

based on past expenditure patterns.

Comparative Parity Budget is based largely

upon what competition is doing.

Objective and Task Set objectives and then determine

tasks (and costs) necessary to meet the objectives.

Percent of Sales The method is very arbitrary.

Budget may be too high when sales are high and too low when sales are low.

Comparative Parity Differences in marketing strategy

may require different budget levels.

Objective and Task The major issue in using this

method is deciding the right objectives so measurement of results is important.

Features Limitations

Budgeting Methods

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Integrating and Implementing Promotion Strategy

Avoiding fragmentation

Difficulty in evaluating productivity

Differences in priorities

Separate organizational units

Assigning integration responsibility

12-15

Illustrative Factors Affecting Promotion Strategy

Number and dispersion of buyers

Buyers’ information needs

Size and importance of purchase

Distribution

Product Complexity

Post-purchase contact required

Small

High

Large

Direct

High

Yes

Large

Low

Small

Channel

Low

No

Advertising/ sales promotion driven

Balanced Personal selling driven

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Promotion Strategy Issues

Expense/Response Relationships

Allocation

Impact on Brand Equity

Integration of Promotion Components

Effectiveness of the Strategy

12-17

ADVERTISING STRATEGY

Setting Objectives and Budgeting

Creative Strategy

Media/Scheduling Decisions

Role of the Advertising Agency

Program Implementation and Measuring Effectiveness

12-18

The Internet is Shifting the Power Position The Internet is Shifting the Power Position to the Customerto the Customer

* How the Money is Spent is Changing.How the Money is Spent is Changing.

* The Amount Spent on Internet Advertising is a Small The Amount Spent on Internet Advertising is a Small Fraction of the Total, but Very Powerful and Growth Fraction of the Total, but Very Powerful and Growth is Accelerating.is Accelerating.

* Consumers Spend 10 hrs/person/day with Media of Consumers Spend 10 hrs/person/day with Media of all Kindsall Kinds—How Much is Media Multi-Tasking?—How Much is Media Multi-Tasking?

* Ad Spending Versus Consumers’ Time Allocations.Ad Spending Versus Consumers’ Time Allocations.

* Advertising Agency Consolidation and Advertising Agency Consolidation and Reorganization—the Big 4.Reorganization—the Big 4.

* Do Companies Recognize the Revolutionary Do Companies Recognize the Revolutionary Implications of Newly Empowered Consumers?Implications of Newly Empowered Consumers?

* The Internet Will be the Most Prominent Medium in The Internet Will be the Most Prominent Medium in the Lives of the 18-34 Age Group.the Lives of the 18-34 Age Group.

Source: The Economist, “Crowned at Last: A Survey of Consumer Power,” April 2, 2005, 1-16.

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Advertising Strategy

Target Audience

Advertising Objectives

Advertising Budget

Creative Strategy

Advertising Media and Programming Schedules

Evaluate the Effectiveness of the Strategy

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Expose communication to target audience

Create awareness

Change attitude(s)

Increase Sales

Generate profits

Advertising Objectives

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Increasing UncertaintyAbout Impact onPurchasing Behavior

Increasing Difficultyof Measurement

Type of Objective

• Exposure

• Awareness

• Attitude Change

• Sales

• Profit

Alternative Levels for Setting Advertising Objectives

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Budget Determination

OBJECTIVE AND TASK METHOD HAS THE MOST SUPPORT

Media/ Scheduling Decisions

Creative Strategy

Budget Determination

12-23

The Vuitton Machine*The Vuitton Machine*Inside the world’s biggest, most profitable

luxury brand

BENCHMARKING VUITTON Brand 2003 Sales Percent Operating

Billions Change* Margin Louis Vuitton $3.80 +16% 45.0%

Prada 1.95 0.0 13.0 Gucci** 1.85 -1.027.0

Hermès 1.57 +7.725.4 Coach 1.20 +34.0 29.9

*At constant rate of exchange **Gucci division of Gucci Group Data: Company reports. BW

Vuitton increased advertising 20% in 2003—spends only 5% of revenues on advertising—about half the industry average

*BusinessWeek, March 22, 2004, 98-102.

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Product Distribution Price Promotion

Advertising(How to communicate intended positioning to buyers and others influencing the purchase.)

Creative Strategy

CREATIVE STRATEGYThe creative strategy is guided by the

market target and the positioning strategy.

Provide a unifying concept that binds together the various parts of the advertising campaign.

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Media/Scheduling Decision

Television

Radio

Magazines

Online

Website

Outdoor

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Relative access to the target audience

Relative cost of reaching the target group(s)

Favorable zone

Unfavorable zone

12-27

Advertising Agencies in Perspective

Fast change has come to the advertising industry. Huge, integrated agencies face a challenging future. Do clients want a full-service agency? The business model is in need of change. The basis of compensation continues to be debated and altered. Specialists (e.g. media buying services) are being used. Importantly, the core of the creative process is the agency. Several methods are available to evaluate advertising results.

12-28

Advertising Agency

Role of the Advertising Agency

Target Audience

Advertising Objectives

Advertising Budget

Creative Strategy

Advertising Media and Programming

Evaluate the Effectiveness of the Strategy

12-29

Advertising Strategy Implementation and Effectiveness

Decide how to measure effectiveness before implementing the strategy.

Assign responsibility for tracking performance. Assessing the quality of advertising is

important. Exposure to advertising is not a very sensitive

measure of effectiveness. Several methods are available to evaluate

advertising results.

12-30

MEASURINGADVERTISING

EFFECTIVENESS

RatingServices

Sales andExpense AnalysisTest

Marketing

ControlledTests

RecallTests

12-31

SALES PROMOTION

consists of various incentives, mostly

short term, intended to stimulate

quicker and/or greater purchase of

particular goods/services by consumers

or the trade.

SALES PROMOTION STRATEGY

12-32

STRATEGYSTRATEGYFEATUREFEATURE

* Consumers hate the hassles, companies love unredeemed rebates, and Consumers hate the hassles, companies love unredeemed rebates, and regulators are investigating the consumer complaints.regulators are investigating the consumer complaints.

* As much as 40% of rebates never get redeemed.As much as 40% of rebates never get redeemed.

* Some 400 million rebates are offered each year with a total value of $6 Some 400 million rebates are offered each year with a total value of $6 billion.billion.

* Unclaimed rebates translate into more than $2 billion of Unclaimed rebates translate into more than $2 billion of extraextra revenue for revenue for retailers and their suppliers each year.retailers and their suppliers each year.

* Complex filing rules and long delays discourage consumers.Complex filing rules and long delays discourage consumers.

* Companies emphasize the filing processes are intended to discourage Companies emphasize the filing processes are intended to discourage fraud.fraud.

* The largest rebate processor monitors 10,000 addresses suspected of The largest rebate processor monitors 10,000 addresses suspected of submitting bogus rebates.submitting bogus rebates.

* Rebates offer companies an opportunity to promote small discounts Rebates offer companies an opportunity to promote small discounts without marking the products down.without marking the products down.

* Rebates have become very popular with computer and consumer-Rebates have become very popular with computer and consumer-electronics companies.electronics companies.

The Realities of Mail-in Rebates

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* The value of rebates has also increased.The value of rebates has also increased.

* Regulators are intensifying their scrutiny of the companies offering Regulators are intensifying their scrutiny of the companies offering rebates.rebates.

* The developing back-lash against rebates is pushing some companies to The developing back-lash against rebates is pushing some companies to halt rebate strategies.halt rebate strategies.

* Others are encouraging online filing.Others are encouraging online filing.

* Fulfillment houses are revising their processing systems, using computer Fulfillment houses are revising their processing systems, using computer technology to validate claims.technology to validate claims.

* Consumers would like mail-in rebates to go away but want the best price Consumers would like mail-in rebates to go away but want the best price they can get.they can get.

Source: Brian Grow, “The Great Rebate Runaround,” BusinessWeek, December 5, 2005, 34, 36, and 37.

12-34

SALESPROMOTION

TARGETS

ConsumerBuyers

Salespeople

BusinessBuyers

Value Chain

Sales Promotion Activities and Targets

Activities include trade shows, specialty advertising, contests, displays,

coupons, recognition programs, and free samples.