Transcript Establish Objectives

7
Establishing Objectives and
Budgeting for the Promotional
Program
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Value of Objectives

Focus and Coordination


Plans and Decisions


They help to orient everyone involved
toward one, common goal.
They serve as criteria for developing plans
and making decisions.
Measurement and Control

They provide the standards and
benchmarks for evaluating results.
Objectives


Sales Objectives
Communications Objectives
Not all Ads are Designed to
Achieve Sales
Not all Ads are Designed to
Achieve Sales
Sales Objectives



Specific, measurable outcomes within a
given time period.
Ex. sales volume, market share, profits,
or ROI.
A good sales objective is quantifiable,
realistic and attainable. In addition, it
also delineates the target market and
time frame.
Problems with Sales
Objectives




Too many factors influence sales.
Carryover effect: for mature, frequently
purchases, low-priced products,
advertising effect on sales lasts up to 9
months.
Offer little guidance to the managers.
Induce the managers to take a shortterm perspective.
Many Factors Influence Sales
Product Quality
Technology
The Economy
Promotion
SALES
Competition
Distribution
Price Policy
Appropriate Situations for S.O.

Induce an immediate behavioral
response



Direct-response advertising
Retail advertising, ex. 新光三越, 家樂福.
Advertising plays a dominant role in a
firm’s marketing program and other
factors are relatively stable. Ex.
packaged goods.
Sales Objectives are Appropriate
for Direct Response Advertising
Communications Objectives

Designed to achieve such
communications as brand knowledge
and interests, favorable attitudes and
images, and purchase intentions.
Advertising and Movement Toward Action
Related behavioral
dimensions
Conative
Movement
toward purchase
Purchase
Realm of motives.
Ads stimulate or direct
desires.
Conviction
Affective
Preference
Realm of emotions.
Ads change attitudes
and feelings
Cognitive
Realm of thoughts.
Ads provide
information and facts.
Liking
Types of promotions and
advertising at each step
Point of purchase
Retail store ads, Deals
“Last-chance” offers
Price appeals, Testimonials
Competitive ads
Argumentative copy
“Image” copy
Status, glamour appeals
Knowledge
Announcements
Descriptive copy
Classified ads
Slogans, jingles, skywriting
Awareness
Teaser campaigns
Inverted Pyramid of Communications
Effects
90% Awareness
70% Knowledge
40% Liking
25% Preference
20% Trial
5% Use
Setting Objectives Using the
Communications Effects Pyramid







Product: Backstage Shampoo
Time period: Six months
Objective 1: 90% awareness
Objective 2: 70% interest
Objective 3: 40% positive feelings and 25%
preference
Objective 4: 20% trial
Objective 5: 5% main regular use
The DAGMAR Approach
Define
Advertising
Goals for
Measuring
Advertising
Results
Communication Tasks

Four stages




Awareness
Comprehension
Conviction
Action
Characteristics of Objectives
Good Objectives Should Include:
 Concrete, Measurable Communication Tasks
 Well-Defined Target Audience
 Have an Existing Benchmark Measure
 Specify Degree of Change Sought
 Specific Time Period
DAGMAR Difficulties
Legitimate Problems
 Response Hierarchy
Problems
 Doesn't always define the
process people use to reach
purchase/use.
 Attitude - Behavior
Relationship
 Attitude change doesn't
always lead to change in
actions or behavior.
Questionable Objections
 Sales Objectives Are
Needed
 Sales are all that really
counts, not communications
objectives.
 Costly and Impractical
 The research and efforts
cost more then the results
are worth.
 Inhibition of Creativity
 Too many rules and
structure curb genius.
The Promotional Budget


Establishing the budget
Allocating the budget (budgeting
approaches)
Establishing the budget



Marginal Analysis
Sales response models
Additional factors in budget setting
Marginal Analysis
Gross Margin
Sales in
$
Sales
Ad. Expenditure
Profit
Point A
Advertising / Promotion in $
BASIC Principles of Marginal Analysis
Increase Spending . . . IF:
The increased cost is less than the incremental
(marginal) return.
Decrease Spending . . . IF:
The increased cost is more than the incremental
(marginal) return.
Hold Spending Level. . . IF:
The increased cost is equal to the incremental
(marginal) return.
Problems with Marginal
Analysis


Assumption that sales are a direct
measure of advertising and promotional
efforts.
Assumption that sales are determined
solely by advertising and promotion.
Advertising Sales/Response
Functions
B. S-Shaped
Response
Function
Sales
High Spending
Little Effect
Middle Level
High Effect
Advertising Expenditures
Initial Spending
Little Effect
Sales
A. ConcaveDownward
Response Curve
Range A Range B Range C
Advertising Expenditures
Additional Factors in Budget
Setting


Figure 7-11
Figure 7-12
Allocating the Budget


Top-down budgeting
Bottom-up budgeting
Top-Down Budgeting
Top Management Sets the
Spending Limit
The Promotion Budget Is Set to Stay
Within the Spending Limit
Top-Down Budgeting





Arbitrary allocation
The affordable method
Percentage of Sales
Competitive parity
Return on investment (ROI)
The Affordable Method



It is common among small firms and
certain non-marketing-driven large
firms.
Logic: We can’t be hurt with this
method.
Weakness: often does not allocate
enough money.
Percentage of Sales



Sales dollar or unit product cost
Future or past
Pros



Financially safe
Reasonable limits
Stable
Percentage of Sales

Cons





Reverse the cause-and-effect relationship
between advertising and sales.
Stability
Misallocation
Difficult to employ for new product
introductions.
Sales↓ → Advertising budget↓
Competitive Parity Method

Pros


Take advantage of the collective wisdom of
the industry
Cons

Prisoners’ dilemma
Bottom-Up Budgeting
Total Budget Is Approved by
Top Management
Cost of Activities are Budgeted
Activities to Achieve Objectives
Are Planned
Promotional Objectives Are Set
Bottom-Up Budgeting



Objective and Task Method
Payout Planning
Quantitative Models
Objective and Task Method

Three steps:



Defining the communications objectives to
be accomplished
Determining the specific strategies and
tasks need to attain them
Estimating the cost associated with
performance of these strategies and tasks
Objective and Task Method
Establish Objectives
(create awareness of new product among
20 percent of target market)
Determine Specific Tasks
(advertise on market area television and
radio and local newspapers)
Estimate Costs Associated with Tasks
(television, $575,000; radio, $225,000;
newspaper, $175,000)
Payout Planning
To determine how much to spend,
marketers develop a payout plan that
determines the investment value of the
advertising and promotion appropriation
Example of a three-year payout plan ($ millions)
Product sales
Profit contribution
(@$.50 per case)
Advertising/promotions
Profit (loss)
Cumulative profit (loss)
Year 1
15.0
Year 2
35.50
Year 3
60.75
7.5
15.0
(7.5)
(7.5)
17.75
10.50
7.25
(0.25)
30.38
8.50
21.88
21.63