Establishing Objectives and Budgeting for the Promotional Program 7 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Starbucks Core competencies –Third Place –Neighborhood coffee shop Failed Ventures –Joe magazine –Café Starbucks –Circadia Losing focus –Hear MusicMusic –Akeelah and the Bee Closing down stores

Value of Objectives Communications Planning & Decision Making Measurement & Evaluation Measurement & Evaluation Specific Objectives

Characteristics of Objectives SpecificMeasurable Quantifiable Attainable Realistic

Measurable Results

Marketing vs. 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 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 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 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 Vs.

SalesSales ObjectivesObjectives Increased Sales Increased Market Share Brand Extensions

Factors Influencing Sales CompetitionTechnology The economy Product quality Price Distribution Advertising & promotion

Where Sales Objectives are Appropriate

Test Your Knowledge Which of the following statements about communications objectives is true? A) Sales goals are easily translated into communications objectives. B) It can be difficult to determine the relationship between communications objectives and sales performance. C)Communications objectives cannot serve as operational guidelines for planning, executing, and evaluating promotional programs. D)Marketing managers often do not recognize the value of setting communications objectives.

IMC perspective GeicoGeico Increases in AdvertisingAdvertising –Sell via internet & direct sales –In 2005, increased advertising expenditures 75% to $403 million –In 2006, spent twice as much as nearest competitor –Also spent in more places Increases in SalesSales –5.8% new customer acquisition (2.1% is industry average) –91% ad message recognition –Only brand to have double digit market share growth 13.1%

From Awareness to Action Affective Realm of emotions. Ads change attitudes and feelings Cognitive Realm of thoughts. Ads provide information and facts Conative Realm of motives. Ads stimulate or direct desires Teaser campaigns “Image” copy Status, glamour appeals Announcements Descriptive copy Classified ads, slogans, Jingles, skywriting Competitive ads Argumentative copy Point of purchase Retail store ads, deals “Last-chance” offers Price appeals Testimonials Purchase Conviction Preference Liking Knowledge Awareness

Creating an Image

Communications Effects Pyramid 20% Trial Conative 40% Liking Affective 90% Awareness Cognitive 5% Use 70% Knowledge/Comprehension 25% Preference

The DAGMAR Approach D efine A dvertising G oals for M easuring A dvertising R esults Action Awareness Conviction Comprehension

Characteristics of Objectives Concrete, measurable tasks Benchmark measures Well-defined audience Specified time period

Pros and Cons of DAGMARCons Inhibition of creativity Relies heavily on the response hierarchy May not increase sales Practicality and cost Pros Focus on communications objectives Measurement of stages Better understanding of goals and objectives Less subjective

Advertising-Based View of Communications Acting on Consumers Ads

UtilizingUtilizing a Variety of MediaaVariety

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Establishing & Allocating the Promotional Budget Sponsorship Underwriting Public Relations Sales Promotions Internet Group Sales Direct Marketing

Test Your Knowledge In marginal analysis, all of the following should be considered except: A) Sales B) Fixed costs of advertising C) Advertising expenditures and other variable costs D) Gross margin E) Net worth

Establishing a Budget

Budget Adjustments Increase Spending If the cost is less than the marginal return Hold Spending Hold Spending If the cost is equal to the incremental return Decrease Spending If the cost is more than the incremental return

Assumptions for Marginal Analysis Sales are determined solely by advertising and promotion Sales are a direct measure of advertising and promotions efforts

Sales Response Models Incremental Sales Advertising Expenditures A.Concave-Downward Response Curve Incremental Sales Advertising Expenditures Range ARange BRange C B.S-Shaped Response Function High Spending Little Effect Initial Spending Little Effect Middle Level High Effect

Purchase frequency Factors Influencing Advertising Budgets Product life cycle Product durability Differentiation Product price Hidden product qualities

Top-Down vs. Bottom-Up Budgeting

Top-Down Budgeting Methods Top Management Top Management Affordable Method Competitive Parity Percentage of Sales Return on Investment Arbitrary Allocation

Test Your Knowledge Well known brand name products do not receive incremental advantages from increased dollar expenditures on advertising. Once the ad hits the market, subsequent budget increases result in little or no incremental gains. This is best explained by: A) Arbitrary allocation B) The objective and task method C) Competitive parity D) An S-shaped response E) Rapidly diminishing returns

Object and Task Method Isolate objectives Reevaluate objectives Determine tasks required Estimate required expenditures Monitor

Payout Planning

Quantitative Models

Allocating to IMC Elements

Share of Voice Effect Decrease–find a defensible niche Increase to defend Attack with large SOV premium Maintain modest spending premium Competitor’s Share of Voice High Low HighLow Your Share of Market

Economies of Scale There is no evidence to support any of these! Proposition I Larger firms can support their brands with lower relative advertising costs than smaller firms. Proposition II The leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands. Proposition III There is a static relationship between advertising costs per dollar of sales and the size of the advertiser.

Organizational Characteristics Factors that influence advertising and promotion budgets –The organization’s structure –Power and politics –The use of expert opinions –Characteristics of the decision maker –Approval and negotiation channels –Pressure on senior managers to arrive at the optimal budget