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7 Establishing Objectives and Budgeting for the Promotional Program McGraw-Hill/Irwin Copyright © 2012 McGraw-Hill Companies, Inc., All right reversed Setting Objectives • Obstacles to setting objectives • Complex marketing situations • Conflicting perspectives • Uncertainty over resources 7-2 Value of Objectives Measurement/Evaluation Planning & Decision Making Communications Specific Objectives 7-3 Characteristics of Objectives Specific Attainable Realistic Measurable Quantifiable 7-4 Sales vs. Communications Objectives 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 7-5 Problems with Sales Objectives 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 7-6 Factors Influencing Sales Competition Technology The economy Advertising & promotion Product quality Distribution Price 7-7 Where Sales Objectives are Appropriate 7-8 Where Sales Objectives are Appropriate 7-9 Test Your Knowledge Which 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. 7-10 Communications Objectives Conative (behavioral) Ads stimulate or direct desires Purchase Purchase intentions Affective (feeling) Ads change attitudes and feelings Favorable attitudes and image Cognitive (thinking) Ads provide information and facts Brand knowledge and interest Brand awareness 7-11 Creating an Image 7-12 Communications Effects Pyramid 5% Use 20% Trial 25% Preference 40% Liking 70% Knowledge/comprehension 90% Awareness 7-13 GfK Purchase Funnel 7-14 Problems With Communications Objectives • Translating sales goals into communications objectives • What is adequate level of awareness, knowledge, liking, preference, or conviction? • No formulas or guidelines 7-15 The DAGMAR Approach Define Advertising Goals for Measuring Advertising Results Awareness Comprehension Conviction Action 7-16 Characteristics of Objectives Concrete, measurable tasks Well-defined audience Benchmark measures Specified time period 7-17 Criticisms of DAGMAR Problems with response hierarchy Only relevant measure is sales Costly and time consuming Inhibits creativity 7-18 Advertising-Based View of Marketing Ads Acting on Consumers 7-19 Utilizing a Variety of Media 7-20 Balancing Objectives and Budgets What we’re willing and able to spend What we need to achieve our objectives 7-21 Establishing the Budget How much should we spend on advertising and promotion? To whom should we allocate the monies? 7-22 Budget Decisions in a Down Economy When times get tough, advertising and promotional budgets are the first to be cut 7-23 Marginal Analysis 7-24 Weaknesses of Marginal Analysis Sales are a direct measure of advertising and promotions efforts. Sales are determined solely by advertising and promotion. 7-25 Test Your Knowledge In 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 7-26 Budget Adjustments Increase Spending If cost is less than the marginal revenue generated Hold Spending If the cost is equal to the marginal revenue generated Decrease Spending If the cost is more than the marginal revenue generated 7-27 Sales Response Models Advertising Expenditures Initial Spending Little Effect Middle Level High Effect High Spending Little Effect B. S-Shaped Response Function Incremental Sales Incremental Sales A. Concave-Downward Response Curve Range A Range B Range C Advertising Expenditures 7-28 Factors Influencing Advertising Budgets Product life cycle Product durability Differentiation Hidden product qualities Product price Purchase frequency 7-29 Top-Down vs. Bottom-Up Budgeting 7-30 Top-Down Budgeting Methods Affordable Method Return on Investment Competitive Parity Top Management Arbitrary Allocation Percentage of Sales 7-31 Build-Up Approaches • Objective and Task Method • 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 7-32 Implementing the Objective and Task Approach Isolate objectives Determine tasks required Estimate required expenditures Monitor Reevaluate objectives 7-33 Payout Planning 7-34 Quantitative Models Computer Simulation 7-35 Allocating to IMC Elements 7-36 Other Budget Allocation Factors • Budgeting Factors • Client/agency policies • Market size • Market potential • Market share goals 7-37 High Low Competitor’s Share of Voice Share of Voice Effect Decrease–find a defensible niche Increase to defend Attack with large SOV premium Maintain modest spending premium Low High Your Share of Market 7-38 Economies of Scale Proposition I Larger firms can support their brands with lower relative advertising costs than smaller firms. Proposition II The leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands. Proposition III There is a static relationship between advertising costs per dollar of sales and the size of the advertiser. There is no evidence to support any of these! 7-39 Organizational Characteristics • Factors that influence advertising and promotion budgets • The organization’s structure • Power and politics • The use of expert opinions • Characteristics of the decision maker • Approval and negotiation channels • Pressure on senior managers to arrive at the optimal budget 7-40