Objectives and Budgeting We can’t afford advertising that isn’t working. –Thomas Knowlton President, Kellogg’s We can’t afford advertising that isn’t working. –Thomas Knowlton President, Kellogg’s

Value of Objectives Focus and Coordination They help to orient everyone involved toward one, common goal. They help to orient everyone involved toward one, common goal. Plans and Decisions They serve as criteria for developing plans and making decisions. They serve as criteria for developing plans and making decisions. Measurement and Control They provide the standards and benchmarks for evaluating results. They provide the standards and benchmarks for evaluating results.

Measuring Advertising Effectiveness AdvertisingAdvertisingSALESSALES TechnologyTechnologyCompetitionCompetition The Economy Product Quality PricePriceDistributionDistribution

Problems With Sales Objectives Many other variables may influence sales. Advertising has a lagged effect. Sales objectives offer little guidance to creative and media people. Many other variables may influence sales. Advertising has a lagged effect. Sales objectives offer little guidance to creative and media people.

Where Sales Objectives May Work In order of appropriateness: Direct response Direct response In order of appropriateness: Direct response Direct response

Where Sales Objectives May Work In order of appropriateness: Direct response Direct response Retail special event promotions Retail special event promotions In order of appropriateness: Direct response Direct response Retail special event promotions Retail special event promotions

Where Sales Objectives May Work In order of appropriateness: Direct response Direct response Retail special event promotions Retail special event promotions Mature & very stable markets Mature & very stable markets In order of appropriateness: Direct response Direct response Retail special event promotions Retail special event promotions Mature & very stable markets Mature & very stable markets

Communications Objectives 90% Awareness 70% Comprehension 40% Liking 25% Preference 20% Trial 5% Regular Use Hierarchy of Effects Pyramid Conative Affective Cognitive

Communications Objectives Objective 1: Create brand awareness among 90% of the target audience. Objective 2: Create understanding of key brand benefits among 70% of the target audience. Objective 3: Create positive feelings about the brand among 40% and preference among 25% of the target audience. Objective 4: Obtain trial among 20% of the target audience. Objective 5: Develop and maintain regular use among 5% of the target audience. Objective 1: Create brand awareness among 90% of the target audience. Objective 2: Create understanding of key brand benefits among 70% of the target audience. Objective 3: Create positive feelings about the brand among 40% and preference among 25% of the target audience. Objective 4: Obtain trial among 20% of the target audience. Objective 5: Develop and maintain regular use among 5% of the target audience.

The DAGMAR Approach D efine A dvertising G oals for M easuring A dvertising R esults

Characteristics of Objectives Specific Communications Objectives Concrete Measurable Tasks Well-Defined Target Audience Existing Benchmark Measure Degree of Change Sought Specific Time Period Critique of Objectives

DAGMAR Difficulties Legitimate Problems Response Hierarchy Problems Doesn't always define the process people use to reach purchase/use. 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. 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 too much structure curb genius.

Theoretical Issues in Budgeting Concave-Downward Response Curve

Theoretical Issues in Budgeting S-Shaped Response Curve

Theoretical Issues in Budgeting Marginal Analysis Theoretical Issues in Budgeting Marginal Analysis Advertising / Promotion in $ Sales in $ Point A Profit Sales Gross Margin Ad. Expenditure

Problems with Marginal Analysis Assumption: Sales are the principal objective of advertising and/or promotion. Sales are the principal objective of advertising and/or promotion.Assumption: Sales are the result of advertising and promotion and nothing else. Sales are the result of advertising and promotion and nothing else.

Budgeting - Top Down Historical Method Affordable Method Percentage-of-Sales May be based on last year’s with a percentage increase. Allocates whatever is left over to advertising. Compares total sales with the total promotion budget during a previous or projected time period.

Budgeting-Top Down Arbitrary Allocation Competitive Parity Budgeting by fiat. Matching the competition’s percentage-of-sales expenditures.

Examples of ad-to-sales ratios Airlines 1.2 % of sales Soft drinks 5.3 Cable TV 1.3 Dolls15.2 Food & kindred products10.2 Steel works and blast furnaces 1.9 Watches, clocks and parts13.7 Wine and brandy11.3 Records, audiotape, disk13.4 Plastic, resins 0.5

Budgeting-Bottom Up Objective & Task Method Looks at objectives set for each activity, and determines the cost of accomplishing each objective. 1. Isolate Objectives 2. Determine Tasks Required 3. Estimate Required Capital Expenditures 4. Monitor 5. Reevaluate Objectives 1. Isolate Objectives 2. Determine Tasks Required 3. Estimate Required Capital Expenditures 4. Monitor 5. Reevaluate Objectives