 2007 Thomson South-Western Marcom Objective Setting and Budgeting Chapter Six

2 Setting Marcom Objectives Goals that the various marcom elements aspire to individually or collectively achieve during a scope of time such as a business quarter or fiscal year.

3 Some Marcom Objectives Facilitate the successful introduction of new brands. Build sales of existing brands by increasing the frequency of use, the variety of use, or the quantity purchased. Inform the trade and consumers about brand improvements.

4 Marcom Objectives Create brand awareness Enhance a brand’s image Generate sales leads Persuade the trade to handle the manufacturer’s brands Stimulate point-of-purchase sales Increase customer loyalty

5 Marcom Objectives Improve corporate relations with special interest groups Offset bad publicity about a brand or generate good publicity Counter competitors’ communication efforts Provide customers with reasons for buying immediately instead of delaying a purchase

6 Why Set Marcom Objectives Expression of management consensus Guides the budgeting, message, and media aspects of advertising strategy Provide standards against which results can be measured

7 The Hierarchy of Marcom Effects  The hierarchy of effects metaphor implies that for marketing communications to be successful it must move consumers from one goal to the next goal.

8 The Hierarchy Of Effects

9 Advancing Consumers From Unawareness to Awareness Advertising (mass media or otherwise) is generally the most effective and efficient method for quickly creating brand awareness. Building knowledge & understanding: Creating an Expectation

10 Hierarchy of Effects Encouraging Trial Purchases

11 Hierarchy of Effects Forming Beliefs and Attitudes Reinforcing Beliefs and Attitudes Accomplishing Brand Loyalty

12 Requirements for Setting Suitable Marcom Objectives Include a precise statement of who, what, and when Be quantitative and measurable Specify the amount of change whenever possible Be realistic Be internally consistent Be clear and put it in writing

13 Should Marcom Objectives Be Stated in Terms of Sales? Presales Objectives: communication objectives that attempt to increase the target audience’s brand awareness, enhance their attitudes toward the brand, shift their preferences from the competitors’ brand and so on. Sales Objectives: means the marcom objective literally is to increase sales by a particular amount.

14 Should Marcom Objectives Be Stated in Terms of Sales? Traditional View (Thesis) Sales volume is the consequence of a host of factors in addition to marcom Effect of marcom efforts is delayed Problem: Communication objectives don’t necessarily translate into sales

15 Sales Volume as a Marcom Objective Heretical View (Antithesis) Marcom’s purpose is to generate sales Sales measures are “vaguely right” Problem: Too many other factors influence sales

16 An Accountability Perspective (Synthesis) Chief executives and financial officers are demanding greater accountability from marcom programs. The measurement of effects of a program should not stop short of measuring the effect on sales.

17 Marcom 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 –Every additional dollar spent on MARCOM brings in more than a dollar in revenue (MR>MC), it is profitable to continue MARCOM spending. –If the additional dollar spent on MARCOM brings in less than a dollar in revenue (MR<MC), MARCOM spending needs to be cut. –Thus profits are maximized when MR = MC

18 Sales-to-Advertising Response Function The relationship between money invested in advertising and the response, or output, of that investment in terms of revenue generated.

19 An Example of a Sales-to- Advertising Response Function

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

21 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) During recession?

22 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 Build upwards by costing activities

23 The Competitive Parity Method Sets the ad budget by basically following what competitors are doing SOM- (share of market) the ratio of one brand’s revenue to total category revenue SOV- (share of voice) the ratio of a brand’s advertising expenditures to total category advertising expenditures

24 Advertising Spend, SOV, and SOM for Top-10 Wireless Phone Brands

25 Advertising Spend, SOV, and SOM for Top-10 Beer Brands

26 The SOV/SOM Effect and Ad Spending Implications

27 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