Overview of Advertising Management Chapter Eight Overview of Advertising Management

Chapter Eight Objectives Explain why advertising is an investment in brand equity bank Describe the functions of advertising Understand the role for advertisement objectives and the requirements for setting good objectives Describe the hierarchy-of-effects model and its relevance for setting advertising objectives

Chapter Eight Objectives Explain the distinction between direct and indirect advertising objectives Understand the role of sales as an advertising objective and the logic of “vaguely right versus precisely wrong” thinking

Chapter Eight Objectives Understand the nature and importance of advertising budgeting Explain the relation between a brand’s share of market (SOM) and share of voice (SOV) Explain the various rules of thumb, or heuristics, that guide practical advertising budgeting

Ad-Investment Consistent investment spending is the key factor underlying successful advertising.

Arguments for Investing in Advertising Investment in advertising requires that incremental revenue > advertising expense

Arguments for Disinvesting in Advertising Decreased expenses in advertising mean increased profits (everything else held equal)

Investment in the Brand Equity Bank “Strong advertising represents a deposit in the brand equity bank.” Strong- that is, different, unique, clever, memorable

Advertising Functions Informing Persuading Reminding Adding Value Assisting Other Company Efforts

Advertising Functions Informing Makes consumers aware, educates them about the features and benefits, and facilitates the create the creation of positive brand images Facilitates the introduction of new brands and increases demand for existing brands Performs another information role by teaching new uses for existing brands (Usage expansion advertising)

Advertising Functions Persuading Persuades customers to try advertised products and services Primary demand- creating demand for an entire product category Secondary demand- the demand for a specific company’s brand

Persuading Gillette MACH3

Advertising Functions Reminding Keeps a company’s brand fresh in the consumer’s memory Influences brand switching by reminding consumers who have not recently purchased a brand that the brand is available and that it possesses favorable attributes

Advertising Functions Adding Value Three basic ways by which companies can add value innovating improving quality altering consumer perceptions Advertising adds value to brands by influencing consumers’ perceptions

Advertising Functions Assisting Other Company Efforts Advertising is just one member of the marketing communications team Sometimes, an assister that facilitates other company efforts in the marketing communications process

The Advertising Management Process Advertising Strategy Setting Objectives Formulating Budgets Creating Ad messages Selecting Ad Media and Vehicles Strategy Implementation Assessing Ad Effectiveness

Setting Advertising Objectives Expression of management consensus Guides the budgeting, message, and media aspects of advertising strategy Provide standards against with results can be measured

The Hierarchy of Effects The hierarchy of effects metaphor implies that for advertising to be successful it must move consumers from one goal to the next goal

A Hierarchy Model of How Advertising Works

The Hierarchy of Effects

Setting Good Advertising Objectives Include a precise statement of who, what, and when Be quantitative and measurable Specify the amount of change Be realistic Be internally consistent Be clear and put it in writing

Sales Volume as an Advertising Objective Traditional View Sales volume is the consequence of a host factors in addition to advertising Effect of advertising is delayed

Sales Volume as an Advertising Objective Heretical View Advertising’s purpose is to generate sales Sales measures are “vaguely right”

The Logic of Vaguely Right Vs. Precisely Wrong Thinking Choice of Objective Issue Measurement Accuracy Issue Versus Precisely Wrong

Advertising Budgeting in Theory The best(optimal) level of any investment is the level that maximizes profits(MR=MC) Advertisers should continue to increase their advertising investment as long as it is profitable to do so MC = (Change in total cost) (Change in quantity) = TC/Q MR = (Change in total Revenue) (Change in quantity) = TR/Q

Budgeting Considerations in Practice What is the Ad objective? How much are competitors spending? How much money is available?

Budgeting Methods Percent-of-Sales Budgeting Objective-and-Task Method Competitive Parity Method (match competitors method) Affordability Method

Percentage-of-Sales Budgeting A company sets a brand’s advertising budget by simply establishing the budget as a fixed percentage of past or anticipated sales volume Criticized as being illogical Sales=f(Advertising) (o) Advertising=f(Sales) (x)

Objective-and-Task Method The most sensible and defendable advertising budgeting method Specify what role they expect advertising to play for a brand and then set the budget accordingly

The Competitive Parity Method Sets the ad budget by basically following what competitors are doing

Affordability Method Only the funds that remain after budgeting for everything else are spent on advertising Only the most unsophisticated and impoverished firms However, affordability and competitive considerations influence the budgeting decisions of all companies