Establishing Objectives and Budgeting for the Promotional Program Chapter Seven Establishing Objectives and Budgeting for the Promotional Program Establishing Objectives and Budgeting for the Promotional Program © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Value of Objectives Objectives Focus & Coordination Focus & Coordination Plans & Decisions Plans & Decisions Relation to text This slide relates to material on pp. 195-196 of the text. Summary Overview This chapter examines the nature and purpose of objects and the role they play in guiding the development, implementation, and evaluation of an IMC program. The value of setting objectives include the following: Focus and coordination – setting objectives facilitates the coordination of the various groups working on the campaign. The advertising and promotional program must be coordinated within the company, inside the ad agency, and between the two as well as with any other communication agencies involved with the campaign Planning and decision-making – specific promotional objectives guide the development of the integrated marketing communications plan. They also guide decisions regarding strategic and tactical issues such as creative options, media selection, and budget allocation. Measurement and control – objectives provide a benchmark against which the success or failure of the promotional campaign can be measured. Use of this slide This slide can be used to introduce the importance of setting advertising and promotion objectives. Specific objectives are needed to coordinate and guide the development of the promotional program, as well as provide a benchmark against which performance can be measured and evaluated. Measurement & Control © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Characteristics of Objectives Attainable Attainable Realistic Realistic Measurable Measurable Objectives Relation to text This slide relates to material on pp. 196-197 of the text. Summary Overview This slide summarizes the characteristics of good objectives and shows that they should be: Realistic Attainable Measurable Specific Not mutually exclusive Use of this slide This slide can be used to discuss the various characteristics of good communication and promotional objectives. While the task of setting good objectives can be complex and difficult, it must be done properly as specific objectives are the foundation upon which all advertising and promotional decisions are made. Not Mutually Exclusive Specific Specific © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Advertising Can Shape Corporate Images Relation to text This slide relates to the material on pp. 194-95 Summary Overview This slide shows an ad for Georgia-Pacific that is designed to inform readers of the efforts the company takes to protect the environment. The ad notes how Georgia-Pacific formed a partnership with The Nature Conservatory to protect an environmentally-sensitive stretch of land along the Lower Roanoke River in North Carolina. Use of this slide This ad can be used to demonstrate how companies have different objectives for their advertisements. The objective of corporate advertising for companies such as Georgia Pacific is to enhance their image and generate goodwill rather than to directly generate sales. + © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Marketing Versus Communications Objectives Marketing Objectives Generally stated in the firm’s marketing plan Achieved through the overall marketing plan Quantifiable, such as sales, market share, ROI To be accomplished in a given period of time Must be realistic and attainable to be effective Marketing Objectives Communications Objectives Derived from the overall marketing plan More narrow than marketing objectives Based on particular communications tasks Designed to deliver appropriate messages Focused on a specific target audience Relation to text This slide relates to material on pp. 196-198 of the text which discusses marketing and communication objectives. Summary Overview Communications objects are not the same as marketing objectives. This slide summarizes the differences between the two. Marketing objectives Stated in the firm’s marketing plan Statements of what is to be accomplished by the overall marketing plan Measurable outcomes such as sales, market share, ROI over a specific period of time Must be realistic and attainable Communications objectives Derived from the overall marketing plan Generally more narrow than marketing objectives Based on the particular communications task required to deliver the appropriate messages to the target audience Are focused on a specific target audience Use of this slide This slide can be used to discuss the differences between marketing objectives and communications objectives. Communications objectives evolve from the companies overall marketing plan and should be based on the marketing and promotional issues facing the company or brand. Vs. © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Many Different Factors Affect Sales Distribution Promotion Technology Competition The Economy Product Quality Price Policy Relation to text This slide relates to material on pp. 198-202 of the text. Summary Overview Many marketers take the position that the basic reason a firm spends money on advertising and promotion is to sell its products. As such, sales or other sales related measures are often used as communications objective. One of the difficulties of using sales as a communication objective is that sales are a function of many factors, not just advertising and promotion. This chart shows the various factors that can affect sales which include: advertising and promotion competition product quality distribution technology price policy the economy Use of this slide This slide can be used to discuss marketers’ use of sales as communication objectives. While it is generally accepted that advertisers need to think in terms of how the promotional program will influence sales, the success or failure of the advertising campaign cannot always be based on sales. You can use this slide to discuss the various factors that can influence sales other than advertising and promotion. Promotion Competition Product Quality Distribution Technology Price Policy © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Sales As Advertising Objectives Relation to text This slide relates to material on pp. 200-202 of the text. Summary Overview This slide shows an ad for Service Merchandise and its advertising of a Valentine’s Day promotion that is designed to increase sales. This ad is intended to attract consumers to stores during the sales period to generate a greater sales volume. Service Merchandise’s management can evaluate the effectiveness of its promotional effort by analyzing the store traffic and sales volume during the sale days and comparing them to figures for non-sales days. Use of this slide This slide can be used to show an example of a form of advertising that can be evaluated on the basis of sales. Retail advertising is often action-oriented and promotes events such as sales that are designed to get consumers to respond during a specific time period. + © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Direct Response Ads Seek Sales Relation to text This slide relates to material on pp. 200-202 and exhibit 7-5 of the text. Summary Overview This slide shows an example of a direct-response advertising message. The direct response advertiser, in this case Skytel, generally sets objectives and measures success in terms of sales response generated by the ad. The effectiveness of the ad can be measured by the number of responses received and whether they result in sales of the product. Use of this slide This slide can be used as an example of a direct response type advertising message. For this form of advertising, sales results are an appropriate objective. + © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Many Ads Seek Communications Objectives Relation to text This slide relates to material on pp. 202-202 of the text. Summary Overview This slide shows an ad for the Japanese company Hitachi. The ad is designed to inform the reader of the speed and reliability of the company’s semiconductors by comparing them to the legendary Bullet train. While there is no call for immediate action, the ad creates favorable impressions about the company by creating a distinct image. The ad is a good example of the use of communication-oriented objectives. Use of this slide This slide can be used to discuss communications-oriented objectives versus sales-oriented objectives. It is an example of an ad that is attempting to create an image and favorable impressions of the company rather than generating immediate sales. + © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Advertising and Movement Toward Action Conative Realm of motives. Ads stimulate or direct desires. Purchase Conviction Preference Liking Knowledge Awareness Point of purchase Retail store ads, Deals “Last-chance” offers Price appeals, Testimonials Affective Realm of emotions. Ads change attitudes and feelings Competitive ads Argumentative copy Relation to text This slide relates to material on pp. 202-203 and figure 7-2 of the text. Summary Overview This slide shows a chart of the various steps in the hierarchy of effects model of advertising developed by Lavidge and Steiner. The model shows the various steps the consumer moves through from awareness to purchase, along with examples of various types of promotion or advertising relevant to each step. As consumers move through the three stages they become closer to making a purchase, which is the ultimate goal of marketers. Use of this slide This slide can be used to explain the hierarchy of effects model and show the various steps consumers move through from awareness to purchase. The examples of the various types of promotion or advertising relevant to the various steps are included to show the promotional programs that can influence the consumers’ movement. This model is often used as a basis for communication objectives by agencies and marketers. “Image” copy Status, glamour appeals Cognitive Realm of thoughts. Ads provide information and facts. Announcements Descriptive copy Classified ads Slogans, jingles, skywriting Teaser campaigns © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Image Ads Can Have a Strong Effect on Preference Relation to text This slide relates to material on pp. 202-205 and the opening vignette to Chapter 7 Summary Overview This slide shows an ad for Waterford Crystal which is a brand with an outstanding image for product quality. Advertising is used by Waterford to reinforce its brand image and reputation for outstanding product quality. However, as discussed in the opening vignette to the chapter, Waterford’s brand image is due in large part to the quality of the product rather than heavy advertising. Use of this slide This slide can be used to discuss the role advertising plays for high quality products such as Waterford Crystal. As discussed in the opening vignette, there is more to creating a “quality brand” than advertising. However, advertising can play an important role in creating brand awareness and reinforcing a quality image. + © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Pyramid of Communications Effects 20% Trial Conative 5% Use 20% Trial 40% Liking Affective 25% Preference 25% Preference Relation to text This slide relates to material on pp. 203-205 and Figure 7-3 of the text. Summary Overview This slide is a chart of the communications effect pyramid. It shows that advertising and promotion perform communications task in the same way a pyramid is built, by first accomplishing the lower-level objectives such as awareness and knowledge. Subsequent tasks involve moving consumers who are aware of or knowledgeable about the product or service to higher levels in the pyramid. The initial stages, at the base of the pyramid, are easier to accomplish than those toward the top, such as trial and repurchase or regular use. Thus, the percentage of prospective customers will decline as they move up the pyramid. Use of this slide This slide can be used to discuss the effects of communications. Marketing communications such as advertising are designed to move customers from awareness to purchase, but marketers are aware that this will not happen immediately. As such, advertisers set their communications objectives in relation to where the target audience lies with respect to the various blocks of the pyramid. An example of how the communications effects pyramid can be used to set objectives is provided in Figure 7-4 of the text. 40% Liking 90% Awareness Cognitive 70% Knowledge 70% Knowledge 90% Awareness © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The DAGMAR Approach Define Advertising Goals for Measuring Results Relation to text This slide relates to material on pp. 206-211 of the text which discusses the DAGMAR approach to setting objectives. Summary Overview In 1961, Russell Colley prepared a report for the Association of National Advertisers titled Defining Advertising Goals for Measured Advertising Results. Colley developed a model for setting advertising objectives and measuring the results of an ad campaign that became known by its acronym. The DAGMAR model has become one of the most influential approaches to advertising planning and setting advertising objectives. Use of this slide This slide can be used to introduce the DAGMAR model and the value of setting specific communications objectives. The DAGMAR approach to setting objectives has had considerable influence on the advertising planning process as many promotional planners use this model as a basis for setting objectives and assessing the effectiveness of their promotional campaigns. © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Specific Objective: Membership Specific Target: Avid Golfers Relation to text This slide relates to the material on pp. 203-209 of the text which discusses setting objectives for advertising. Summary Overview This slide contains a commercial from the “For the good of the game” advertising campaign sponsored by the United States Golf Association (USGA) which serves as the governing body for golf in the U.S. The objectives of this campaign are as follows: To create awareness of and an identity for the USGA as the national governing body of golf To help change the image of the USGA as a conservative organization for serious golfers to an association that represents the interests of all types of golfers and works to preserve, protect, and promote the integrity of the game To make golfers aware of the fact that they can become members of the USGA To encourage golfers to visit the USGA web site to learn more about the association Use of this slide This commercial can be used an example of advertising from a campaign that is designed to achieve specific objectives. This particular commercial is called “Optimist” and is a humorous spot with which any golfer who has had a round of golf canceled because of rain can identify. *Click outside of the video screen to advance to the next slide © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Questionable Objections DAGMAR Difficulties Legitimate Problems Attitude - Behavior Relationship Response Hierarchy Problems Attitude - Behavior Relationship Response Hierarchy Problems Relation to text This slide relates to material on pp. 208-209 of the text which discussed problems associated with DAGMAR. Summary Overview While DAGMAR has contributed to the advertising planning process, a number of problems have led to questions regarding its value as a planning tool. Some of these are: Response hierarchy problems – a major criticism of the model is its reliance on the hierarchy of effects model. Consumers do not always go through this sequence of steps before making a purchase (alternative response models have been developed as part of DAGMAR MOD II) Attitude – behavior relationship – attitudes do not always precede behavior. There may be situations where behavior precedes attitude change. Sales objectives – some argue that sales is the only relevant measure of advertising and have little tolerance for the use of communication objectives Costly and impractical – DAGMAR takes time and money to conduct research and establish benchmarks. Many critics argue that it is only practical for large companies with research budgets Inhibition of creativity – DAGMAR imposes too much structure on those responsible for creating the advertising and restricts their creativity by making them accountable to quantitative measures of performance Use of this slide This slide can be used to discuss the drawbacks of the DAGMAR model. Although it is a valuable tool in that it suggests a logical process for advertising and promotional planning, it is not totally accepted by everyone for some of the reasons mentioned. Recent studies have shown that many advertisers and agencies fail to follow some of the basic principles of the model and do not use appropriate objectives for determining success. Questionable Objections Sales Objectives Needed Costly and Impractical Inhibits Creativity Sales Objectives Needed Costly and Impractical © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Advertising-Based View of Communications Advertising Through Media Acting on Consumers Relation to text This slide relates to material on pp. 210-211 and Figure 7-7 of the text. Summary Overview This slide is a chart showing a traditional advertising-based view of marketing communications. This approach is based on a hierarchical response model and considers how marketers can develop and disseminate advertising messages to move consumers along an effects path. It is also known as inside-out planning. The focus is on what the marketer wants to say, when the marketer wants to say it, about things the marketer believes are important about the brand, and in the media forms the marketer wants to use. Use of this slide This slide can be used to discuss the traditional advertising-based view of marketing communications. The focus of this planning process is communicating with the target audience by using the traditional hierarchy of response model with the goal of moving the consumer along the pathway towards purchase. An alternative to this approach is called zero-based communications planning which involves determining what tasks need to be done and which marketing communications functions should be used and to what extent. © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The San Diego Zoo's Objective is to Attract Visitors Relation to text This slide relates to the material on pp. 210-212 and Figure 7-8. Summary Overview This slide contains a commercial for the world famous San Diego Zoo. As shown in Figure 7-8, the San Diego Zoological Society uses a variety of IMC tools to promote its two major attractions, the San Diego Zoo and Wild Animal Park. A major objective of the IMC program is to draw visitors to the two attractions. This commercial was used to celebrate the birth of Hua Mei, the baby panda who was born at the zoo on August 21, 1999 and was the first giant panda born in the U.S. to survive longer than one week. The commercial celebrates the birth of Hua Mei and features pictures of her after she was born and during her first year of development. The spot features endearing images of the baby panda and ends with a super proclaiming “the Year of the Baby” at the World Famous San Diego Zoo. Use of this slide This slide can be used as part of a discussion of how the San Diego Zoological Society uses a variety of IMC tools to promote its two major attractions. A major part of the marketing strategy for the San Diego Zoo is to use new exhibits or attractions that will give people a reason to go the zoo. New attractions are particularly important for generating repeat visitors from the San Diego area as well as the broader Southern California market. *Click outside of the video screen to advance to the next slide © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Balancing Objectives and Budgets What we’re willing and able to spend What we need to achieve our objectives Relation to text This slide relates to material on pp. 211-213 of the text. Summary Overview This slide introduces the advertising budgeting process. Two questions advertisers begin with when establishing the budget are: What are we willing and able to spend? What do we need to spend to achieve our objectives? No organization has an unlimited budget to spend on advertising, so objectives must be set with the budget in mind. Use of this slide This slide can be used as an introduction to the budgeting process. It can also be used to discuss the issues concerning what marketers are willing and/or able to spend on advertising and promotion and what they need to spend to achieve their objectives. Dollars Goals © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Marginal Analysis Sales Gross Margin Sales in $ Relation to text This slide relates to material on pp. 213-214 and Figure 7-9 of the text. Summary Overview This slide shows a graphical representation of the concept of marginal analysis. This graph shows that as advertising/promotion expenditures increase, sales and gross margins also increase to a point but then level off. Using this concept to determine how much to spend on advertising suggests that a firm would continue to spend as long as the marginal revenues created by these expenditures exceeded incremental advertising costs. As shown on the graph, the optimal expenditure level is the point where marginal costs equal marginal revenues they generate (point A). Use of this slide This slide can be used to discuss the concept of marginal analysis and how it relates to the advertising budgeting process. While this method seems logical, certain weaknesses limit its usefulness. These weaknesses include the assumptions that: sales are a direct result of advertising and promotional expenditures and this effect can be measured Advertising and promotion are solely responsible for sales The limitations of marginal analysis resulting from difficulties in determining the effects of the promotional effort on sales should be noted. Ad. Expenditure Profit Point A Advertising / Promotion in $ © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

BASIC Principle of Marginal Analysis Increase Spending If the increased cost is less than the incremental (marginal) return Hold Spending If the increased cost is equal to the incremental (marginal) return. Relation to text This slide relates to material on pp. 213-214 of the text. Summary Overview This slide summarizes the basic principles of marginal analysis. Some logical assumptions from the graph regarding advertising spending are: Increase spending if the increased cost is less than the incremental return Hold spending if the increased cost is equal to the incremental return Decrease spending if the increased cost is more than the incremental return Use of this slide This slide can be used to further explain the use of marginal analysis for budgeting purposes. Some basic principles of when advertising spending should be changed are shown. Decrease Spending If the increased cost is more than the incremental (marginal) return © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Assumptions for Marginal Analysis Sales are the result of advertising and promotion, and nothing else Sales are the principal objective of advertising and promotion Relation to text This material relates to material on pp. 213-214 of the text. Summary Overview This slide summarizes two basic assumptions of marginal analysis that must be considered when using the concept to determine the advertising budget. These assumptions are as follows: Sales are a direct result of advertising and promotional expenditures and nothing else. Many marketers feel that it is very difficult to measure the influence of advertising on sales which limits the value of marginal analysis. Advertising and promotion are rarely the only factors that are responsible for sales as other elements of the marketing mix including product/service factors, price, and distribution all contribute to the success of the company. Sales are the principal objective of advertising and promotion. Marginal analysis assumes that sales are the principal objective of advertising and promotion. As discussed in this chapter, marketers can have a variety of other objectives for their advertising and promotion programs. Use of this slide This slide can be used to show the basic assumptions related to the use of marginal analysis as an advertising budgeting method. Because of the difficulties associated with using marginal analysis it is seldom used as a basis for budgeting (except for direct response advertising). © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Advertising Sales/Response Functions Incremental Sales Advertising Expenditures A. Concave-Downward Response Curve Incremental Sales Advertising Expenditures Range A Range B Range C B. S-Shaped Response Function High Spending Little Effect Initial Spending Middle Level High Effect Relation to text This slide relates to material on page 214-215 and Figure 7-10 of the text. Summary Overview This slide show two models of the advertising/sales response function. The relationship between advertising and sales has been the topic of much research and discussion designed to determine the shape of the response curve. Almost all advertisers subscribe to one of two models of the advertising/sales response function: The concave-downward function which assumes that the effects of advertising spending follow the microeconomic law of diminishing returns. That is, as the amount of advertising increases, its incremental value decreases. The logic is that those with the greatest potential to buy will likely act on the first (or earliest) exposures, while those less likely to buy are not likely to change a s a result of the advertising. The S-shaped response function which assumes that initial outlays of the advertising budget have little impact (range A). However, after a certain budget level has been reached (range B) advertising and promotional efforts begin to have an effect, as additional increments of expenditures result in increased sales. This incremental gain continues only to a point. When advertising expenditures enter range C, incremental spending will have little additional impact on sales. Use of this slide This slide can be used to explain the two models of the advertising sales/response function. Although there are some weaknesses associated with these models of the sales/response function, they do provide managers with a theoretical basis of how the relationship between advertising spending and sales might work. © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Top-Down Budgeting Top Management Sets the Spending Limit The Advertising Budget Is Set to Stay Within the Spending Limit Relation to text This slide relates to material on pp. 217-224 of the text. Summary Overview This slide outlines the top-down approach to budgeting. In this approach the budgetary amount is established by management and then the monies are allocated to the various departments. The goal of this method is usually to insure that the promotional budget is set to stay within limits set by top management. When this approach to budgeting is used spending levels are essentially predetermined and have no true theoretical basis. Use of slide This slide can be used to introduce the top-down approach to setting the advertising and promotion budget. Specific top down methods are shown in the next slide. © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Top-Down Budgeting Methods Competitive Parity Arbitrary Allocation Top Management Relation to text This slide relates to material on pp. 217-224 of the text. Summary Overview This slide shows the various top-down budgeting methods. They are: Arbitrary allocation – budget is set by management based on what is felt to be necessary. No theoretical basis underlies the budgeting process. Competitive parity – setting budgets on the basis of what competitors spend. Usually accomplished by matching the same percentage of sales expenditures as competitors. Percentage of sales – advertising and promotion budget is based on the sales of product. Determined by either taking an amount based on a percentage of sales revenue sold or anticipated revenue from sales. Affordable method – the firm determines the amount to be spent on the various areas such as production and operations and then allocates what is left to advertising and promotion. Return on investment – advertising and promotions are considered investments, and the budget appropriation is based on the returns the company feels it will generate from advertising Use of this slide This slide can be used to discuss the various top-down budgeting methods. While these methods have their advantages and disadvantages, they are popular because of tradition and top managements desire for control. Studies have shown the percentage of sales and arbitrary method to be most popular. Percentage of Sales Affordable Method © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Bottom-Up Budgeting Total Budget Is Approved by Top Management Cost of Activities are Budgeted Cost of Activities are Budgeted Relation to text This slide relates to material on pp. 224-227 and Figure 7-13 of the text. Summary Overview The slide outlines the bottom-up approach to budgeting. This approach is based on the consideration of a firm’s communications objectives before the budget is set. Once the communication objectives are determined a budget is developed to attain these goals. The specific steps of this approach are: Promotional objectives are set Activities to achieve objectives are planned Cost of activities are budgeted Top management approves total budget Use of this slide This slide can be used to introduce a bottom-up approach to budgeting. The main advantage of using this approach is that the budget is driven by the objectives to be attained rather than some predetermined amount management is willing to spend. Activities to Achieve Objectives Are Planned Activities to Achieve Objectives Are Planned Advertising Objectives Are Set Promotional Objectives Are Set © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Objective and Task Method Establish Objectives (create awareness of new product among 20 percent of target market) 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) Determine Specific Tasks (advertise on market area television and radio and local newspapers) Relation to text This slide relates to material on pp.224-225 and Figure 7-18 of the text. Summary Overview This slide outlines the three steps of the objective and task method of budgeting. This method reflects a bottom-up approach to budgeting and involves the following steps: Establishing objectives – specific communication objectives to be achieved are established Determine specific tasks – determine the specific tasks needed to accomplish the communication objectives. May include advertising in various media, developing programs involving sales promotions and/or other elements of the promotional mix. Estimate costs associated with tasks – determining what it will cost to perform the specific tasks that must be performed to achieve the objectives. Use of this slide This slide can be used to discuss the objective and task method of setting the advertising and promotion budget. The main advantage of using this approach is that the budget is driven by the objectives to be attained rather than some predetermined amount management is willing to spend. A disadvantage of this method is the difficulty in determining which tasks will be required and the costs associated with each. Estimate Costs Associated with Tasks (determine costs of advertising, promotions, etc…) © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Are There Economies of Scale? No evidence to support this! Proposition I Larger firms can support their brands with lower relative advertising costs than smaller firms. No evidence to support this! Proposition II The leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands. Relation to text This slide relates to material on p. 231 of the text. Summary Overview Economies of scale in advertising refer to the advantages that larger advertisers have relative to their smaller competitors. One advantage of larger firms with larger market share is they can spend less money on advertising and realize a better return. Another, is they are able to enjoy more favorable time and space positions, cooperation of middlepersons, and favorable publicity. In actuality, studies have shown this not to be true and in fact larger brand share products might be at a disadvantage. The leading brands spend on average of 2.5% more than their brand share on advertising. Use of this slide This slide can be used to introduce the concept of economies of scale in advertising. Despite some evidence supporting the notion of economies of scale in advertising, most research has concluded that there are no real economies of scale to be accrued from the size of the firm or the market share of the brand. No evidence to support this! Proposition III There is a static relationship between advertising costs per dollar of sales and the size of the advertiser. © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Ad Spending and Share of Voice Decrease–find a Defensible Niche Increase to Defend High Competitor’s Share of Voice Attack With Large SOV Premium Maintain Modest Spending Premium Relation to text This slide relates to material on pp. 231-232 and Figure 7-24 of the text. Summary Overview This chart outlines strategies for advertising spending based on a company or brand’s market share and a competitor’s share-of-voice (SOV). Share-of-voice refers to a company or brand’s percentage of the advertising messages compared to all of the advertising messages for that product or service. Recommended ad spending strategies shown in the chart are based on different market share and share of voice scenarios and suggest the following: When market share is high and competitor’s SOV is high, increase to defend market share When market share is high and competitor’s SOV is low, maintain a modest spending premium to hold market share When market share is low and a competitor’s SOV is high, decrease overall spending and find a defensible market niche When market share is low and competitor’s SOV is low, attack with a large SOV premium to increase market share Use of this slide This slide can be used to discuss the various ad spending strategies available to marketers given their market share and competitor’s share-of voice. The marketer has several options available given the varying circumstances and competitive situation. Low Low High Your Share of Market © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin