Learning Objectives. Learning Objectives 17/03/2016. Chapter 7 Establishing Objectives and Budgeting for the Promotional Program

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1 Chapter 7 Establishing Objectives and Budgeting for the Promotional Program Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Learning Objectives To recognize the importance and value of setting specific objectives for advertising and promotion To understand the role objectives play in the IMC planning process and the relationship of promotional objectives to marketing objectives To know the differences between sales and communications objectives and the issues regarding the use of each 7-2 Learning Objectives To recognize some problems marketers encounter in setting objectives for their IMC programs To understand the process of budgeting for IMC To understand theoretical issues involved in budget setting To know various methods of budget setting 7-3 1

2 Value of Objectives Communications Objectives facilitate coordination of the various groups Planning and decision making Objectives guide decision making and development of the integrated marketing communications plan Measurement and evaluation of results Objectives provide a benchmark to measure success or failure 7-4 Marketing Objectives versus Integrated Marketing Communications Objectives Marketing objectives Identify what is to be accomplished by the overall marketing program Defined in terms of specific and measurable outcomes Must be quantifiable, realistic, and attainable Integrated marketing communications objectives Statements of what various aspects of the IMC program will accomplish Based on the particular communications tasks required to deliver the appropriate messages to the target audience 7-5 Sales-Oriented Objectives Aim to increase sales Require economic justification Required to produce quantifiable results Based on the achievement of sales results 7-6 2

3 Figure Factors Influencing Sales 7-7 Problems with Sales Objectives Successful implementation requires all marketing elements to work together Advertising has carryover effect Carryover effect: Monies spent on advertising do not have immediate impact on sales It is difficult to determine precise relationship between advertising and sales Do not offer much guidance for planning and developing promotional program 7-8 Communications Objectives Provide relevant information Create favorable predispositions toward the brand Set using models wherein consumers pass through three stages Cognitive Affective Conative 7-9 3

4 Figure Communications Effects Pyramid 7-10 Problems with Communications Objectives Translating sales goals into communications objectives Promotional planners have difficulty estimating what constitutes adequate levels of awareness, knowledge, liking, preference, or conviction No formulas or guidelines 7-11 Defining Advertising Goals for Measured Advertising Results (DAGMAR) Communications effects are the logical basis for advertising goals and objectives to measure success or failure Communications task Performed by and attributed to advertising rather than marketing factors, includes following stages Awareness, comprehension, conviction, and action

5 Characteristics of Objectives Present concrete and measurable tasks Have well-defined target audience Take into consideration the benchmark and the degree of change sought Benchmark measures: Determine target market s present position regarding the various response stages Specify the time period in which the goals must be accomplished 7-13 Criticisms of DAGMAR Problems with the response hierarchy Sales objectives Practicality and costs Inhibition of creativity 7-14 Figure Traditional Advertising-Based View of Marketing Communications

6 Zero-Based Communications Planning Involves determining: What tasks need to be done Which marketing communications functions should be used and to what extent Focuses on the task to be done and searches for the best ideas and media to accomplish 7-16 Figure Objectives and Strategies in the Social Consumer Decision Journey Source: Expert interviews; McKinsey analysis 7-17 Figure Conclusions on Research of Advertising in a Recession Source: G. Tellis and K. Tellis, Research on Advertising in a Recession, Journal of Advertising Research 49, no.3 (2009), pp

7 Establishing the Promotional Budget Formulated when: A new product is introduced Internal or external factors necessitate a change to maintain competitiveness Established using economic theory, marginal analysis, and contribution margin Contribution margin: Difference between the total revenue generated by a brand and its total variable costs 7-19 Marginal Analysis Increase in advertising/promotional expenditures increases sales and gross margins to a point, after which they level off Weaknesses - Assumes that sales are: A direct measure of advertising and promotions efforts Determined solely by advertising and promotion 7-20 Figure Marginal Analysis

8 Figure Advertising Sales/Response Functions 7-22 Figure Factors Influencing Advertising Budgets Note: 1 relationship means the factor leads to a positive effect of advertising on sales; 2 relationship indicates little or no effect of advertising on sales Figure Factors Considered in Budget Setting

9 Figure Top-Down versus Bottom- Up Approaches to Budget Setting 7-25 Budgeting Approaches: Top-Down Approaches Affordable method Firm determines the amount to be spent in various areas Arbitrary allocation Budget is determined by management solely on the basis of what is felt to be necessary Percentage-of-sales method Advertising and promotions budget is based on sales of the product Competitive parity method Budget amounts are established by matching the competition s percentage-of-sales expenditures Clipping service: Clips competitors ads from local print media ROI budgeting method Advertising and promotions are considered investments, and are expected to earn a certain return 7-26 Figure Alternative Methods for Computing Percentage of Sales

10 Figure Investments Pay Off in Later Years 7-28 Figure Competitors Advertising Outlays do not Always Hurt 7-29 Figure The Objective and Task Method

11 Objective and Task Method Advantage Budget is driven by the objectives to be attained Disadvantage Difficult determine which tasks will be required and the costs associated with each 7-31 Payout Plan Determines the investment value of the advertising and promotion appropriation Projects the revenues a product will generate, as well as the costs it will incur Better and logical approach to budget setting than the top-down approach 7-32 Quantitative Models Employ computer simulation models involving statistical techniques Computer simulation models: Help determine the relative contribution of the advertising budget to sales

12 Steps to Develop and Implement the Budget Employ comprehensive strategy Develop strategic planning framework that employs an integrated marketing communications philosophy Develop contingency plans Focus on long-term objectives Evaluate effectiveness of programs have to be consistently 7-34 Figure How Advertising and Promotions Budgets Are Set 7-35 Budget Allocation: Factors to Consider Allocating to IMC elements Client/agency policies Market size Market potential Market share goals

13 Figure The Share of Voice (SOV) Effect and Ad Spending: Priorities in Individual Markets 7-37 Economies of Scale Set of advantages that allows firms to spend less on advertising and realize a better return 7-38 Organizational Characteristics Factors that influence advertising and promotion budgets Organizational structure Power and politics Use of expert opinions Characteristics of the decision maker Approval and negotiation channels Pressure on senior managers to arrive at the optimal budget