 2007 Thomson South-Western Overview of Advertising Management: Messages, Media, and Measurement Chapter Nine

2 Chapter Nine Objectives Understand the magnitude of advertising and the percentage of sales revenue companies invest in this marcom tool. Recognize that advertising can be extraordinarily effective but that there is risk and uncertainty when investing in this practice. Appreciate the various functions advertising is capable of performing.

3 Chapter Nine Objectives Explore the advertising management process from the perspective of clients and their agencies. Understand the functions agencies perform and how they are compensated. Explore the issue of when investing in advertising is warranted and when disinvesting is justified. Examine advertising elasticity as a means for understanding the contention that “strong advertising is an investment in the brand-equity bank.”

4 Advertising Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future.

5 Advertising-to-Sales Ratios Average 2 to 10% Ranging from 1.4% To 30.7%

6 Advertising Effects Are Uncertain “If you want your brand to be fit, it’s got to exercise regularly. When you get the opportunity to go to the movies or do something else instead of working out, you can do that once in a while—that’s [equivalent to] shifting funds into [sales] promotion. But it’s not a good thing to do. If you get off the regimen, you will pay for it later.” Jennifer Lawrence, P&G

7 Advertising Functions 1.Informing 2.Influencing 3.Reminding and Increasing Salience 4.Adding Value 5.Assisting Other Company Efforts

8 Informing Make consumers aware of new brands. Increase TOMA (Top of Mind Awareness) Teach new uses for existing brands (called usage expansion advertising) –Campbell’s soup for formal family dinners and for breakfast –Special K for afternoon or late-night snacking

9 Reminding and Increasing Salience Making a brand more salient: enriching the memory trace for a brand so that the brand comes to mind in relevant choice situations. Increasing the customer’s interest in mature brands and the likelihood of choosing brands that might have otherwise not been chosen.

10 Adding Value Three ways a company can add value to its offerings: –Innovating –Improving quality –Altering consumer perceptions

11 The Advertising Management Process

12 The Role of Advertising Agencies Three alternative ways to perform the advertising function: –Use an in-house advertising operation –Purchase advertising services on an ad-as- needed basis –Select a full-service advertising agency

13 Alternative ways to perform the advertising function Necessitates employing an advertising staff and absorbing the operation costs Unprofitable unless a company does a large amount of continual advertising In-house advertising operation

14 Alternative ways to perform the advertising function Advantages In-depth knowledge and skills Obtaining negotiating muscle with the media Coordinating advertising and marketing effortsDisadvantages Some control is lost Larger clients are favored over small clients Occasionally inefficient in media buying Full-service advertising agency

15 Alternative ways to perform the advertising function Advantages Use services only when they are needed Availability of high- caliber creative talent Potential cost efficienciesDisadvantages Specialists approach client problems in a stereotyped fashion Lack of cost accountability Financial instability of smaller boutiques A la carte

16 Advertising Agency Organization Develop advertising copy and campaigns Copywriters, production people, and creative directors Creative Services Account Management Media Services Research Services

17 Advertising Agency Organization Selecting the best advertising media Media planners develop overall media strategy Media buyers procure the selected media Creative Services Account Management Media Services Research Services

18 Advertising Agency Organization Study clients’ customers’ buying habits, purchase preferences, and responsiveness Focus groups, mall intercepts, acquisition of syndicated research data Creative Services Account Management Media Services Research Services

19 Advertising Agency Organization Link the agency with the client Act as liaisons so that the client does not need to interact directly with several different service departments and specialists Creative Services Account Management Media Services Research Services

20 Agency Compensation Commissions from media (15%) Reduced commission system(<15%) Labor-based fee system Outcome-based Three Sources

21 Ad Investment Consideration Profit=Revenue –Expenses Revenue =Price X Volume Volume = Trial + Repeat

22 Elasticity A measure of how responsive the demand for a brand is to changes in marketing variables such as price and advertising.

23 How to Increase Profit 1.Maintain status quo 2.Build Image Via Advertising 3.Grow Volume via Price Discounting 4.Increase Advertising and/or discount prices

24 Ad Spending