Transcript Objective and Task - Event Sponsorship Measurement

Agency Budgeting
2/16/2012
Parts of an Agency Budget
Agency
fees
Out of
Pocket
Expenses
(OOP)
Total
Budget
Agency Fees
Billable
Rate
Hours
Agency
Fees
Agency Fees Example
John, an entry-level account coordinator’s
billable rate is $125. He spends 3 hours writing a
press release.
What is the agency fee for the press release?
Agency Fee Example
Billable
Rate
Hours
Agency
Fees
$125
3
$375
Another Example
• John, an entry-level account coordinator’s
billable rate is $125. He spends 3 hours writing
a press release.
• His manager, Sarah, spends 1.5 hours editing
the press release and her billable rate is $175.
What is are the agency fees for this press
release?
Agency Fee Example #2
Billable
Rate
Hours
Agency
Fees
$125
3
$375
$200
1.5
$150
Total
$525
OOP Expenses
• Out of pocket expenses are things such as
printing, shipping, data charges, and travel
that are incurred by the agency in order to
complete the work.
• OOPs expenses are usually agreed upon in
advance and billed at-cost. This means the
agency shouldn’t make a profit off of OOP
expenses.
One Final Example
• John, an entry-level account coordinator’s
billable rate is $125. He spends 3 hours writing
a press release.
• His manager, Sarah, spends 1.5 hours editing
the press release and her billable rate is $175.
• Their agency puts the press release on “the
wire.” This costs $625 and is categorized as an
OOP expense.
Agency Fee Example #2
Billable
rate
Hours
Agency
Fees
$125
3
$375
$200
1.5
$150
$675
Total
$1175
Example Project Budget
Activity
Writing Press Release
Social Media Monitoring
Influencer identification
Influencer outreach
Event planning
Time Subtotal
Hours
2
3
6
4
20
Billing Rate
$50
$50
$50
$50
$50
Billable
$100
$150
$300
$200
$1,000
$1,750
Out of Pocket Expenses
T-shirts
Twitter Advertising
Radian6 Data
OOP Subtotal
Cost
$500
$1,000
$1,000
$2,500
Total
$4,250
Advertising Budgeting
Professor Close
Sources:
Cravens and Percy(1998); Murphy, Cunningham and de Lewis (2011)
We will discuss these topics
of Advertising Budgeting:
1.
Why Crucial
2.
The 3 Budgeting Methods
3.
Trends in Ad Budgeting
*Note, please refer to advertising as INVESTING, not spending, in
our class and in your briefs…
why do I say that?
1. Budget is Crucial to Ad Strategy
Target Audience
Advertising
Objectives
****Advertising
Budget****
Creative Strategy
Advertising Media and
Programming Schedules
Implement and Evaluate Strategy
Effectiveness
So, Why is ad or IBP budgeting crucial?
•
•
•
•
•
Frankly, a company’s success is a function of its growth in sales and profits
What fuels that growth? ADVERTISING and MARKETING
This, in turn, sparks WOM (and this can be free!)
The economy has ups and downs, as do specific industries (Note: the soft
drink industry dropped 4% in 2008 when our economy started hurting—
so Pepsi invested $1.2 BILLION 2008-2011 in a marketing overhaul)
THINK…..Is this common sense? Would you advertise more, status quo, or
less when times are tough?
Tough Times? So,
Re-Allocate to lesser Investments
Which are relatively smaller investments?
New Media
Direct Marketing
WOM$
Personal
Selling
Advertising: TV,
Radio,
Outdoor, Print
Sales
Promotion
Event Marketing
Public
Relations
Your CEO asks you to propose an ad budget.
How would you calculate the ad budget?
Why would you pick this method?
2. Three Ad/IBP Budget Methods
(I don’t even want to mention the 4th…)
Budgeting Method #1a~The Percentage of Past Sales Method
A2 = ƒ (S1)
Where:
A2 is the total ad budget for NEXT year (year 2 or quarter 2)
ƒis a percentage figure
(see NAA industry norms)
S1 is sales for period 1 (or last year’s sales)
Budgeting Method #1b~The Percentage of
Forecasted Future Sales Method
A2 = ƒ (S2)
Where:
A2 is the total ad budget for NEXT year (year 2 or
quarter 2)
ƒ is a percentage figure
(see NAA industry norms)
S1 is sales for period 1 (or last year’s sales)
Budgeting Method #1~Percentage of Sales
Features
Drawbacks
Fixed percent of sales, often based on past
expenditure patterns.
Relatively simple (if you have the
information)
Arbitrary.
Budget may be too high when sales are high.
Budget may be too low when sales are low.
Ignores long-term effects
You must calculate ad allocations as a
fixed percentage of PAST SALES
(e.g., last years’ sales)
You need benchmarks.
You need advertising to sales ratios for the
industry (note these are computed each
year by pro. Ad organizations)
Can help with franchising.
Note: Peckham’s Formula: for new
products, set S.O.V. @ 1.5 times your
desired market share two years out
Industries vary a lot (e.g., malt beverages
invest 10% of annual sales on
advertising; movie theatres are closer to
just 1% industry average)
Note: about 3% is an average ad 2 sales
ratio
Budgeting Method #2~Competitive-Parity
Method
(I call it the market share approach…)
ASV = (AF)
______
Ac + A F
Where:
ASV is the firm’s advertising share of voice (S.O.V) (anyone care to remind us
what S.O.V is?)
AF is the firm’s advertising expenditures for the period in question
Ac is all competitors’ advertising expenditures for the period in question
At least, think about a competitive analysis
LV
Brand
2003 Sales
Billions
Percent
Change*
Operating
Margin
$3.80
+16%
45.0%
Prada
1.95
0.0
Gucci**
1.85
Louis Vuitton
13.0
-1.0
27.0
Hermés
1.57
+7.7
25.4
Coach
1.20
+34.0
29.9
*At constant rate of exchange **Gucci division of Gucci Group Data: Company reports. BW
LV increased advertising 20% in
2003―spends just 5% of revenues on
advertising―half the industry average
Cravens and Percy 1998 cited *Business Week, March 22, 2004, 98-102.
Budgeting Method #2
~Competitive-Parity
Features
Drawbacks
Budgeting Method #3~ Objective and Task
A = ƒ (objectives)
Where:
A is advertising investment
(the firm’s advertising expenditures for the
period in question)
Objectives are things that you want to achieve in
said time period (awareness, trial use, etc.)
Link Objectives to Budget

Need Recognition

Finding Buyers

Brand Building

Evaluation of Alternatives

Decision to Purchase

Customer Retention

…Others?
Budgeting Method #3~ Objective and Task
Features
Drawbacks
Budgeting Method Recap
(Cravens and Percy and Murphy, Cunningham and de Lewis)
Features




Percentage of Sales
Fixed percent of sales, often based on
past expenditure patterns.
Can help with franchising.
Comparative- Parity
Budget is based largely
upon what competition is doing.
Objective and Task
Set objectives and then determine
tasks (and costs) necessary to meet
the objectives.
Drawbacks





Percentage of Sales
Arbitrary.
Budget may be too high when sales are
high
Budget may be too low when sales are
low.
Comparative- Parity
Differences in marketing strategy may
require different budget levels.
Objective and Task
The major issue in using this method is
deciding the right objectives so
measurement of results is important.
Whichever method, budgets vary due to:

Target Market(s)

Desired Positioning

Role of Promotion in Positioning

Product Characteristics

Stage of Life Cycle

Situation Specific Factors (examples?)
Which ad or IBP budget method is
generally a best bet?
Objective and
Task
All You Can
Afford
(note: this is not
a good idea
usually…
Proceed with
caution.
Budgeting Methods
Percent of Sales
(note: Future or
past)
CompetitiveParity
Ad/IBP Budgeting
I would argue for Objective and Task, because of
the logic and the strategic approach with longterm appropriation and flexibility.
Budget Allocation
Media/
Scheduling
Creative
Strategy
3. Recent Trends in Ad/IBP Budgeting Decisions
•
More Promotions/Less Ads
•
International Markets mean more competition and harder to measure
market share
•
Clutter. Clutter. Clutter.
•
Signaling Theory
•
Short-term pressure to brand managers
•
Less umbrella branding strategy (more narrow)
•
Advocacy ads
•
CSR movement
•
Green movement
•
Online ads a 25$ BILLION a year industry (young, mobile, and measurable)
•
Experiential/Event Marketing gaining prominence
Approx. Annual Expenditures
(billions)
$600
Personal Selling Sales
Promotion
$400
Event Marketing
Advertising
$200
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