Transcript PPT - Advertising Principles

Media Decisions
Adapted from J. Scott Armstrong
Updated November 2014
Media allocationR10
Learning Diary
The lectures follow an experiential learning experience.
To make this work properly:
1. Obtain a learning diary (paper). A 10 x 13 bound
diary is suggested.
2. Keep it up to date.
3. Take the learning diary with you to all class sessions.
4. For self-learners, use the diary to track your
learning progress for all of your learning activities.
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Objectives of this session
To understand and apply these principles and
techniques (not to convince you). Ask for clarification as
needed.
Set a goal for yourself on how many principles and
techniques you plan to use by the end of this session.
Even a goal of one will help you. Put this in your learning
diary now.
Note: We will discuss only some of the slides. When you go
through the lecture on your own, view it in “Slide Show” and
follow the experiential procedures.
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Procedure
Focus on understanding.
Record questions in your learning diary that will help
you to apply the techniques or principles, then,
after you decide which ones you want to apply, try
to answer these from the readings. If not clear, ask
others for help.
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Media decisions
Propose media budget
Total . . . and why
Allocate by media
Allocate by time
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Total budget and allocation by media
Objective: To maximize ROI subject to satisfactory
effects on other stakeholders
– Write at least 12 alternative media possibilities in your
learning diary for a frozen food product that is sold in
grocery stores.
– Structured evaluation vs. objectives
• Stakeholders
– e.g. reduce pollution
• Structured Judgment for screening
– e.g., Delphi
• Analysis (done individually; then compare)
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Starting with a problem
Read the Gardenburger Exercise
See the TV commercial produced by a major advertising firm
for the last Seinfeld show
Please come in with your group’s recommendations
1. Should you air the commercial? Show how you analyzed
this.
2. Would you have recommended changes in the
commercial?
3. What alternative channels would you suggest other than
TV?
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Estimating the impact of advertising for a
typical product in a typical market
Please answer the following question.
Caution: In the past, few people could provide reasonable
answers.
You work for a typical firm selling a typical product in a
typical market in the U.S.
Last year’s sales were 50,000 units, which was typical for the
firm.
Last year’s advertising budget was $1 million, which was
typical for the firm.
You plan to spend $1.1 million on advertising this coming
year by using typical advertising.
How many units do you expect to sell this coming year. Write
your answer in your learning diary. ______________ units
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Information about the products
What would you estimate the unit sales if the
product was:
BMW cars?
_______ cars
Bud Lite beer?
_______ truck-loads
Write your answers and reasoning in your learning
diary.
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Bicycle sales
Your friend owns a small bicycle shop. He sells about
1,000 bicycles per year with profits from the bike at
$50 per bike. He has a Yellow Pages ad on which he
spends $5,000 and distributes flyers for another
$5,000.
A. A consultant suggested that he double his spending on
both media.
B. Your friend is not sure whether advertising helps and
was thinking about cutting the ad spend in half.
How many bikes would he sell under each strategy?
Write your answer and explanation in your learning
diary.
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Nurturing divergent views
Meet in your groups and nurture divergent views.
Someone might have reasonable answers, but
he/she would be in the minority and unlikely to
have supporters (5-minute work session).
Present your group’s solutions to each question and
explain your reasoning.
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Five ways to set the media budget*
1. Previous years’ advertising expenditures for the
brand.
2. Typical advertising expenditures for the firms in
your industry as a percentage of sales (A/S)
3. Elasticity method
4. Decomposition
5. Experiment
* Use more than one method and take an average.
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Previous years’ advertising
expenditures for the brand
Graph previous years’ expenditures in real dollars.
Working independently (in your learning diary):
List the arguments favoring increases along with those
favoring decreases.
Recommend a percentage change for next year.
The different estimates would then be averaged.
Use the Delphi procedure
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Typical expenditures for firms in your industry as a
% of sales: the A/S ratio
The typical expenditure method assumes that your
competitors are rational.
Before looking at the typical expenditures, ask experts to list
all arguments as to whether you should be advertising
more or less than what is typical for the industry.
Then ask them to estimate how much your advertising
should depart, in percentage terms, from the typical
expenditure.
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Elasticity method
Use the elasticity method in cases where an existing
product has been advertised.
Advertising elasticity (or “sensitivity to
advertising”) expresses the percentage change
in unit sales given a one percent change in
advertising expenditures.
Given an estimated elasticity of 0.1, if advertising
expenditure were raised by 10%, unit sales
would go up by 1%.
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Average advertising elasticities
Typical
Product type
Durable
Nondurable
Media
Print
TV
0.1
0.23
0.09
0.13
0.03
”Source: (Tellis 2010)
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Elasticities are higher for persuasive ads
Use the AdPrin audit to assess whether the ad is
persuasive relative to a typical ad. Use your
judgment as there are no standards currently.
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Answers to the
“typical” problem
Rule of thumb: advertising elasticities = 0.1
(thus, 50,500 units)
Durable product elasticity > non-durable
(greater sales for BMW)
News leads to higher elasticities
(greater sales for BMW)
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Wright’s Rule
Ad expenditure =
(Elasticity) x (Gross margin per unit) x (forecasted unit sales)
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Decomposition
Make estimates for each element of the decision to
advertise. Do this for any situation (e.g., for new
products or existing products).
The inputs for the method can come from judgment
or data or both. In any event, provide support for
each estimate.
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Decomposition method for print ad
Target market exposed to the ad = T
Percentage of the above who:
a. See the ad
b. Read the ad (of “a”)
c. Understand the ad (of “b”)
d. Intend to purchase because of ad (of “c”)
e. Actually purchase (of “d”)
f. Repeat purchases from new buyers (% of “e”)
ROI = {[(T) x (a) x (b) x (c) x (d) x (e) x (f) x (unit margin)]- cost of
campaign} / (cost of campaign)
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Media decomposition: IKEA Ad*
Prime-time TV; Audience = 20 Million; Cost =$20,000
A.
B.
C.
D.
E.
F.
Target market
Exposed to ad
Pay attention to ad
Understand ad
Intend to purchase
Actually purchase
Sales
Profit
ROI
%
30
50
30
60
5
10
Cumm. %
30
15
4.5
2.7
0.135
0.0135
= 20M x .000135
= 2700 customers
= 2700 x $20 (marg. cont.)
= 54,000
= ($54,000 - $20,000)/$20,000 = 170%
*Subjective estimates by naïve subject. For illustrative purposes only.
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Sources of estimates
Data
Expert judgment
Example: Estimate the instructor’s weight as
dressed (with shoes). Submit your estimate to
one person to find the median.
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Experiments
The ideal way to allocate funds to advertising is to
experiment.
(Easy for direct-response advertising. For example, if the advertising
will be done by direct mail, try different treatments for a sample of
10,000 names.)
Examine the profit made from the resulting sales and divide
by the costs of the direct-mail ads to determine the ROI.
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Exercise for the milk industry ads
The trade organization for milk was spending $50 million per
year on advertising in the late-1990s.
Total industry sales were $14 billion per year.
They planned to spend $190 million on advertising starting in
1999. Increase devoted to the milk mustache print
campaign (see sample ads).
Target market is teenagers and young adults (because milk
consumptions drops rapidly for these groups).
Use the elasticity method to assess whether this is likely to
be a successful campaign and write your results in your
learning diary.
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What? I know – you’ve never seen a cover
girl with a mustache before?
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Ideas for Application
If you are not currently working for an organization,
pick something to work on media allocation for,
perhaps a charity.
If you are in a class, design an ad for yourself as the
owner of small advertising agency (commonly
called a “house ad”). Create a sample media
allocation plan for your “agency.”
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Techniques
In your diary, describe the techniques that you were
able to use for your media allocation and rate your
success (e.g., creativity, objective setting)
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Advice on learning techniques
One study found that fewer than 10% of students were
successful in applying new knowledge.
•This went to 20% if they actively applied what they
were taught during a class session.
•It went to 90% when they worked with a learning
partner and coached each other.
Select techniques to apply
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Follow-up: Complete prior to next session
1. ___ Go through this lecture on your own (It is on
the Educational Materials page)
2.___Study Persuasive Advertising pages 305-307 and
record your reading time in your learning diary.
Highlight techniques and principles that you want to
apply in yellow.
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