Promotional Strategy MKT4230 Establishing Objectives and Budgeting for the Promotional Program Patricia Knowles, Ph.D. Associate Professor 1
Promotional StrategyMKT4230
Establishing Objectives and Budgeting for the Promotional Program
Patricia Knowles, Ph.D.
Associate ProfessorClemson University
1
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Setting ObjectivesThere are obstacles that get in the way of setting IMC program objectives:
• Complex marketing situations
• Conflicting perspectives
• Uncertainty over resources
TextbookPages 216
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Value of ObjectivesSpecific objectives are the foundation upon which other important decisions rest. Setting specific IMC program objectives is so important to do:
• Communications: Setting objectives facilitates coordination of the various groups working on the campaign. Many problems can be avoided if all parties have written, approved objectives to guide their actions and serve as a common base for discussing issues related to the promotional program.
• Planning and Decision Making: Specific promotional objectives guide development of an integrated marketing communications plan, as well as decisions related to creative options, media selection, and budget allocation.
• Measurement and Evaluation: Objectives provide a benchmark against which the success or failure of the promotional campaign can be measured. Most organizations are concerned about the return on their promotional investment; comparing actual performance against measurable objectives is the best way to determine if the return justifies the expense.
TextbookPages 217 - 218
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Characteristics of ObjectivesThese are characteristics of good communication and promotional objectives:
• Specific: A clear definition of what is to be achieved by the program.
• Measurable: Outcomes such as sales volume, market share, profits, or return on investment.
• Quantifiable: Delineates the target market and notes the time frame for accomplishing the goal (often one year).
• Realistic and Attainable… as in “increase sales by 10% during the next 12 months.”
TextbookPages 218 - 219
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Sales vs. Communications ObjectivesThis chart presents the differences between marketing and communications objectives:
TextbookPages 219 - 223
Sales Objectives
• Primary goal is increased sales• Requires economic justification• Should produce quantifiable results
Communications Objectives
• Increased brand knowledge, interest, favorable attitudes and image
• Immediate response not expected• Goal is creating favorable
predispositions
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Problems with Sales ObjectivesThese are some of the problems related to sales objectives:
TextbookPages 220 - 221
Won’t work in isolation
Ad effects take time
Hard to determine precise relationship between advertising and sales
Offers little guidance to those planning and developing the promotional program
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Factors Influencing SalesThese are the various factors that can affect sales:
TextbookPages 220 - 221 / Figure 7 - 1
CompetitionTechnology
Economy
Product Quality
Price
Distribution
Advertising & Promotion
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Where Sales Objectives are AppropriateThis visual presents a packaging design that resulted in a 15.7 percent increase in sales. Some promotion efforts are designed to induce an immediate behavioral response.
TextbookPages 221 - 222 / Exhibit 7 - 3
To celebrate its 100th anniversary, Kayem Foods changed the design of their frankfurter package.
Within 12 weeks of the introduction of the new copy and label, regional sales rose by 15.7 percent, which prompted a national rollout.
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Where Sales Objectives are AppropriateThis visual shows a direct-response ad that Mercury Insurance Group uses to sell products and services. Direct-response advertising often evaluates its effectiveness on the basis of sales. Merchandise or services are advertised to customers, who then make purchases by mail, on the Internet, or by calling a toll-free number.
TextbookPages 221 - 222 / Exhibit 7 - 5
Sales objectives may also be appropriate for TV ads if the ad is the only form of communication and promotion being used, and the response is immediate.
Discount coupons are used to increase sales during a particular time period, so sales objectives are appropriate here as well.
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Test Your KnowledgeWhich of the following statements about communications objectives is true?
A. Sales goals are easily translated into communications objectives. B. It can be difficult to determine the relationship between communications objectives
and sales performance. C. Communications objectives cannot serve as operational guidelines for planning,
executing, and evaluating promotional programs. D. Marketing managers often do not recognize the value of setting communications
objectives.
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Communications ObjectivesThis visual shows a hierarchy of effects model and the steps consumers move through before making a purchase:
TextbookPage 223
Purchase
Purchase intentions
Favorable attitudes and image
Brand knowledgeand interest
Brand awareness
Conative (behavioral)Ads stimulate or
direct desires
Affective (feeling)Ads change attitudes and
feelings
Cognitive (thinking)Ads provide
information and facts
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Creating an ImageThis is an ad that Consolidated Edison uses to create an image of its company.
TextbookPages 223 / Exhibit 7 - 6
Some advertisements do not require immediate action on the part of the consumer, but encourage consumers to consider the brand when they enter the market for products in this category.
In this case, Consolidated Edison creates favorable images of the company by linking pictures of children to Con Ed workers in action.
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Communications Effects PyramidThese are the effects of communications on consumer behavior:
TextbookPages 223 - 224 / Figure 7 - 2
20% TrialConative 5% Use
90% AwarenessCogniti
ve 70% Knowledge/Comprehension
40% LikingAffective 25% Preference
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GfK Purchase FunnelGfK Purchase Funnel is used by many in the automobile industry as a diagnostic model of consumer decision making.
TextbookPages 224 - 227 / Figure 7 - 3
In essence, it is an inverse of the communications effects pyramid, and shows that 90% awareness funnels down to 5% purchase/use.
There are two major problems with translating sales goals into communications objectives:
• Determining what an adequate level is for customer awareness, knowledge, liking, preference, and conviction.
• Having no formulas or guidelines that provide this information. A promotional manager must base decisions on personal experience, as well as the marketing history of this and similar brands.
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Problems with Communications Objectives
TextbookPages 224 - 227
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The DAGMAR ApproachThis is the DAGMAR model and the four stages of the communication process:
TextbookPages 226 - 227
Define
Advertising
Goals for
Measuring
Advertising
Results Action
Awareness
Conviction
Comprehension
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Characteristics of ObjectivesThe basic characteristics of a good objective:
TextbookPages 227 - 228
Concrete and Measurable Tasks
Benchmark Measures
Well-Defined Audience
Specified Time Period
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Criticisms of DAGMARThis visual summarizes the criticisms of the DAGMAR approach:
TextbookPages 228 - 229
Costly and Time Consuming
Problems with Response Hierarchy
Only Relevant Measure is Sales
Inhibits Creativity
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Advertising-Based View of MarketingThis chart shows a traditional advertising-based view of marketing communications:
TextbookPages 229 - 230/ Figure 7 - 4
Acting on Consumers
Ads
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Utilizing a Variety of MediaThis visual shows how the San Diego Zoo attempts to attract visitors through a variety of media:
TextbookPages 230 - 231 / Exhibit 7 - 10
• Provide funding for the society’s programs• Maintain a large and powerful base of
supporters for financial and political strength
• Educate the public about the society’s programs
• Maintain a favorable image on a local, regional, national, and international level
• Draw visitors
To achieve these objectives, the society’s IMC program employs a variety of integrated marketing communication tools, including the website shown on this slide.
Note: This is a good time to show some of the San Diego Zoo and Wild Animal Park videos on the accompanying CD.
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Balancing Objectives and BudgetsThis visual shows the delicate balancing act between how much money a company is willing to spend on advertising, and how much money should be spent to achieve advertising goals.
While establishing marketing objectives is an important part of the planning process, the limitations of the budget are important too. No organization has an unlimited budget, so objectives must be set with the budget in mind.
TextbookPage 231
What we’re willing and able to spend
What we need to achieve our objectives
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Establishing the BudgetThese are the two promotional budgeting decisions that every organization must make:
TextbookPage 231
To whom should we allocate the monies?
How much should we spend on advertising
and promotion?
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Budget Decisions in a Down EconomyDuring a recession, advertising and promotional budgets are the first to be cut. The best defense is a good offense. This is the opposite of what often occurs, because many managers fail to realize the value of advertising and promotion. They see it merely as an expense, rather than an investment.
TextbookPage 233 / Exhibit 7 - 11
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Marginal AnalysisThis visual shows a graphical representation of the concept of marginal analysis. As advertising/promotional expenditures increase, sales and gross margins also increase, but then level off. Profits are a result of the gross margin minus advertising expenditures.
TextbookPages 235 - 236 / Figure 7 - 7
Using this theory to establish a budget, a firm would continue to spend advertising dollars as long as the revenues created by the expenditures exceeded the advertising costs. As shown on the graph, the optimal expenditure level is the point at which costs equal the revenues they generate (point A).
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Weakness of Marginal AnalysisThe two basic assumptions about marginal analysis that limit its usefulness:
TextbookPages 235 - 236
Sales are determined solely by advertising
and promotion.
Sales are a direct measure of advertising and promotions efforts.
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Test Your KnowledgeIn marginal analysis, all of the following should be considered except:
A. Sales
B. Fixed costs of advertising
C. Advertising expenditures and other variable costs
D. Gross margin
E. Net worth
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Budget AdjustmentsThis chart presents situations in which advertising budgets should be maintained as-is, increased, or decreased.
TextbookPages 235 - 236 / Figure 7 - 7
Increase Spending
If cost is less than the marginal revenue generated
HoldSpending
If the cost is equal to the marginal revenue generated
Decrease Spending
If the cost is more than the marginal revenue generated
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Sales Response ModelsThe two models of the advertising/sales response function.
TextbookPages 236 - 237 / Figure 7 - 8
Incr
emen
tal S
ales
Advertising Expenditures
A. Concave-Downward Response Curve
Incr
emen
tal S
ales
Advertising ExpendituresRange A Range B Range C
B. S-Shaped Response Function
Hig
h Sp
endi
ngLi
ttle
Effe
ct
Initi
al S
pend
ing
Litt
le E
ffect
Mid
dle
Leve
lH
igh
Effec
t
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Factors Influencing Advertising BudgetsThese are some of the additional factors that should be considered when establishing an advertising budget.
TextbookPages 237 - 238 / Figure 7 - 9
Purchasefrequency
Product life cycle
Productdurability
Differentiation
Productprice
Hidden productqualities
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Top-Down vs. Bottom-Up BudgetingThis chart outlines the top-down and bottom-up approaches to budgeting.
Promotion objectives are set
Bottom-Up Budgeting
Activities needed to achieve objectives are planned
Costs of promotion activities are budgeted
Total promotion budget is approved by top management
Top management sets the spending limit
Top-Down Budgeting
Promotion budget set to stay within spending limit
TextbookPages 238 - 239 / Figure 7 - 11
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Top-Down Budgeting MethodsThese are examples of various top-down budgeting methods.
TextbookPages 238 - 245
AffordableMethod
CompetitiveParity
Percentage of Sales
Return onInvestment
ArbitraryAllocation
TopManagement
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Build-Up ApproachesObjective and Task Method is one build-up approach to budgeting and consists of three steps:
• Define communications objectives to be accomplished• Determine specific strategies and tasks needed to attain them• Estimate costs associated with performance of these strategies and tasks
The total budget is based on the accumulation of these costs.
TextbookPage 246
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Implementing the Objective and Task ApproachThese are the steps of objective and task budgeting, which reflects a bottom-up approach.
TextbookPages 246 - 247
Isolate objectives
Determine tasks required
Estimate required expenditures
Monitor
Reevaluate objectives
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Payout PlanningThis chart illustrates that the first months of a new product’s introduction typically require heavier-than-normal advertising and promotion to stimulate product awareness and subsequent trial. To determine how much to spend, marketers often develop a payout plan that projects revenues the product will generate, as well as the costs it will incur, over two to three years.
TextbookPages 247 - 248 / Figure 7 - 19
A three-year payout plan is shown on this slide. The product will lose money in year 1, almost break even in year 2, and show a profit by the end of year 3.
Note that the cost of advertising and promotion is highest in year 1, and declines in years 2 and 3.
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Quantitative ModelsQuantitative budgeting models are available, but have met with limited success. Generally, these methods employ computer simulation models involving statistical techniques, such as multiple regression analysis, to determine the relative contribution of the advertising budget to sales.
TextbookPage 249
Because of problems associated with these methods, their acceptance has been limited.
As these methods are improved and refined, they may achieve more widespread success.
Computer Simulation
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Allocating to IMC ElementsThis is how advertising expenditures were allocated in between 2008 and 2009. Advertisers distributed their funds among the various advertising venues and those allocations shifted over time.
TextbookPages 250 - 253 / Figure 7 - 23
Note that many advertisers are shifting from traditional advertising media to sales promotions targeted to both consumers and the trade.
As this figure shows, radio and magazines took the hardest hits.
The only media showing increases during this time frame were for the Internet (display advertising) and free-standing inserts (FSIs).
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Other Budget Allocation FactorsThese are other factors that may influence a company’s budget allocation decisions:
• Client/Agency Policies: There may be disagreement over whether monies should go to sales promotions or advertising, creative talent or specific media. Decisions will also be impacted by past successes.
• Market Size: Smaller markets are often easier and less expensive to reach.
• Market Potential: A market with low sales but high potential may be a candidate for additional appropriations.
• Market Share Goals: Does the company want to maintain or increase market share? As a rule, new brands receive higher-than-average advertising support. Older, mature brands have reduced advertising support. Well-established brands require a lower expenditure.
TextbookPage 251 - 252
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Other Budget Allocation FactorsThis chart outlines strategies for advertising spending based on company or brand market share and a competitor’s share-of-voice (SOV).
TextbookPages 252 / Figure 7 - 22
Decrease–find a defensible niche Increase to defend
Attack with large SOV premium
Maintain modest spending premiumCo
mpe
titor
’sSh
are
of V
oice Hig
hLo
w
HighLow
Your Share of Market
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Economies of ScaleThese are three propositions related to the economies of scale in advertising:
TextbookPage 252
There is no evidence to support any of these!
Proposition ILarger firms can support their brands with lower relative advertising costs than smaller firms.
Proposition IIThe leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands.
Proposition IIIThere is a static relationship between advertising costs per dollar of sales and the size of the advertiser.
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Organizational CharacteristicsThe following factors influence budget allocation decisions, although they may vary from one organization to another, and each influences the amount assigned to advertising and promotion.
• Organization’s Structure: Centralized versus decentralized, formalization, and complexity.
• Power and Politics: Including the level of interaction between functional departments.
• Use of Expert Opinions: For example, advise from consultants, or trade and academic journals.
• Characteristics of Decision Maker: Preferences and experience.
• Approval and Negotiation Channels: How many approval levels, approval limitations, and so forth.
• Pressure on senior managers to arrive at the optimal budget… more important than ever in an economic downturn.
TextbookPages 252 - 253