1. Conditions for use of advertising principles Adapted from J. Scott Armstrong Updated on March 2016 Conditions R18 1

2. Learning Diary The lectures follow an experiential learning experience. To make this work properly: 1.Obtain a learning diary (paper). A 10 x 13 bound diary is suggested. 2.Keep it up to date. 3.Take the learning diary with you to all class sessions. 4.For self-learners, use the diary to track your learning progress for all of your learning activities. 2 Adprin.com

3. Objectives of this session To understand and apply these principles and techniques (not to convince you). Ask for clarification as needed. Set a goal for yourself on how many principles and techniques you plan to use by the end of this session. Even a goal of one will help you. Put this in your learning diary now. Note: We will discuss only some of the slides. When you go through the lecture on your own, view it in “Slide Show” and follow the experiential procedures. Adprin.com

4. Procedure Focus on understanding. Record questions in your learning diary that will help you to apply the techniques or principles, then, after you decide which ones you want to apply, try to answer these from the readings. If not clear, ask others for help. 4 Adprin.com

5. Conditions Principles are “condition/action statements” So far, all advertising principles are related to conditions. There are no “universal rules” for persuasive advertising. You need to define the conditions before you decide what actions to take. The conditions section examines three main areas: –Objectives –Product –Target market 5 Adprin.com

6. Can companies articulate their objectives? 68 entries in the print-ad Gold Key Awards were asked to include a statement of objectives. None specified the amount of change or the time period. (Hartley & Patti 1988).Hartley & Patti 1988 Of the 29 winners of EFFIES (for “effectiveness”) only 17% of the 167 objectives were measurable (Moriarty 1996) 6 Adprin.com

7. Bose Wave radio ad: What are the objectives of this ad? Write your answer in your learning diary. When you finish, click here. 7

8. Setting objectives Assume that you had to identify objectives for the Bose Wave radio ad campaign. What techniques would you use to identify objectives? –Ask clients: Use Non-directive interviewing of key people in the firm. This is perhaps the most important technique you can learn at a business school.Non-directive interviewing –Suggest to clients: Evidence-based approach to objective setting. 8 Adprin.com

9. Guidelines for non-directive interviewing 1.Don’t evaluate what the interviewee says. 2.Let the interviewee know that you’re interested in what he says and that you understand. Take notes, unless the replies are highly sensitive. 3.Don’t interrupt. 4.Don’t bring in your own ideas during the interview. 5.Don’t worry about pauses in the conversation. Take notes in your learning diary to ensure you can practice these guidelines. 9 Adprin.com

10. Assume you are creating an ad for someone offering consulting services for advertisers Use NDI to determine what benefits your client might have for an advertising group. In particular, look for a Unique Selling Proposition. Groups of three: Client looking to be advertised Interviewer Silent observer (does the interviewer use NDI properly?) Less than a 5-minute interview. 10 Adprin.com

11. Form tentative groups We will be doing group exercises (such as developing a “house ad” for your agency). 11 Adprin.com

12. Big Guys Case: Short version Provide your response to this short (one- page) case in your learning diary before clicking for the next slide. 12

13. Objective setting You are starting a new ad agency. You tell your assistant to write a set of objective for the agency. He says that he does not know how to set objectives. You are away on a business trip. Write a message to him with operational steps for setting objectives (put this in your diary). When you finish, click here. 13

14. Setting objectives: Evidence-based approach Objectives should be –Relevant –Comprehensive –Explicit –Measurable (how much and by when) –Challenging yet achievable Such objectives increase motivation and improve performance, as shown by studies involving over 100 different tasks with over 40,000 participants in eight countries using laboratory and field experiments (Locke & Latham 2002).Locke & Latham 2002 14 Adprin.com

15. Are you satisfied with the objectives stated by Levi Strauss for its 501 jeans ad campaign? 1.maintain and increase brand share, 2. maintain the 501’s price premium, 3. introduce and establish the Pan-American advertising support in Spain, and 4. achieve the above using TV advertising. Write your answers in your diary, then click here for evidence- based answers. #1 is not relevant #2, 3 and 4 are strategies, not objectives 15 Adprin.com

16. Focus on relevant objectives What would be the ultimate objectives for the Bose Corporation? To test, keep asking why until it makes no sense. Do not confuse strategies with objectives 16 Adprin.com

17. “What do you believe would be the effect on long-term profitability if a firm’s objective is to achieve higher market share?” Survey of 99 marketing faculty: % HIGHER57 UNDECIDED 16 LOWER27 17 Adprin.com

18. What should be the objectives of firms? (n=170 marketing students) Primary Purpose should be to be: % better than its competitors 29 the best that it can 71 18 Adprin.com

19. Big Guys Case Expected Profits Over Five Years Low-Price StrategyHigh-Price Strategy $40 million$80 million 19 Adprin.com If you were a marketing manager, which strategy would you use?

20. Results % Less Profitable Decision(n) Product Not Specified17.6(17) Perfume 6.7(15) Technical Product15.2(33) Weighted Average14 20 Adprin.com

21. Here is more information: Do you change strategy? Expected Profits Over Five Years (millions of dollars) Low Price StrategyHigh Price Strategy Big Guys (Us)40 80 Other Guys20160 21 Adprin.com

22. Effects of information about competitors on the pricing decision Information Provided about Competitor? Type of Information Total Decisions Percent Choosing Less Profit No--6513.8 YesBeat6060.0 22 Adprin.com

23. Further assessment of pricing decision 20-year version reduced percentage of low-profit decisions by 11%. Still, one-third of the 97 subjects selected the less profitable decision. 23 Adprin.com

24. Beat others: HarmBeat Pricing33.9 (127)60.0 (24) Ex Post Pricing39.5(76)50.7 (69) “Two comparable but independent geographic regions” “Over past five years... Harry charged a high price Louis charged a low price” Same profit matrices used Results in Percentage of unprofitable decisions (n=sample size) 24 Adprin.com

25. Effects of management training Exposure to Formal Management Training Percent Less Profitable Decisions Number of decisions Low37.7236 Moderate46.3227 High54.5 88 25 Adprin.com

26. Follow-up questionnaire Of those who mentioned their competitor, 83% selected the less profitable decision. 26 Adprin.com

27. What if we ran the following study? 1.Select 20 firms in different industries 2.Assess the extent to which their goals are competitor-oriented (market share) 3.Examine their profits over the next three decades Assuming that the 20 firms differ greatly with respect to their competitor-orientation, what would you predict? Profits in firms with market share as a primary goal would be: _____much lower _____lower _____the same _____higher _____much higher than in firms with profit-oriented goals. 27 Adprin.com

28. Competitiveness Scale (MS is Market Share) Competitiveness 1=low 11=high Pricing Goals* Number of Firms Principal GoalCollateral Goal 1High Profit 3 2Profit 1 3Stability1 4High ProfitMaintain MS*2 5High ProfitIncrease MS0 6ProfitMaintain MS4 7ProfitIncrease MS0 8Maintain MSProfit2 9Increase MSProfit1 10Maintain MS4 11Increase MS2 * High profit means a return of investment of at least 15% after taxes 28 Adprin.com

29. Competitiveness and ROI by Firm Firm Competitiveness 1=low 11=high Return on Investment (After Taxes) 1947-551956-641965-731974-82 DuPont125.915.58.06.9 General Electric121.49.46.77.9 Union Carbide119.29.16,36.6 Alcoa213.84.2 5.5 Kennecott316.08.98.23.2 General Motors426.013.212.06.3 Johns Manville414.94.67.64.9 Standard Oil of N.J. (Exxon)616.07.87.68.0 General Foods612.211.48.97.4 US Steel (USX)610.36.03.53.4 International Harvester68.94.64.0-3.4 Kroger812.16.14.94.6 Standard Oil of Indiana810.45.46.48.3 Sears95.48.56.44.2 Goodyear1013.37.05.74.0 Gulf1012.68.97.126.3 American Can1011.65.24.83.8 Swift106.92.43.3n.a. A & P1113.07.84.2-2.9 National Steel1112.16.05.11.1 29 Adprin.com

30. Competitor-Oriented Firms Less Likely to Survive (1955 to 1992) Profit Oriented Competitor Oriented Survived DuPont General Electric Union Carbide Alcoa Goodyear A&P Did Not Survive Gulf American Can Swift National Steel 30 Adprin.com

31. Effects of the Experience Curve Descriptions Exposure to Experience Curve Percent Selecting Less Profitable Decision Sample Size No44.5137 Yes58.897 31 Adprin.com

32. Prediction case on competition in advertising 57 subjects made “advertising spending decisions as marketing managers of medium-sized manufacturers in mature markets.” Cooperative decisions would produce higher profits than competitive decisions. (Prisoners’ Dilemma design)Prisoners’ Dilemma What % chose the less profitable objective so they could beat their competitor? (Corfman & Lehmann 1994)Corfman & Lehmann 1994 78% 32 Adprin.com

33. Firms should maximize NPV subject to meeting certain levels for their stakeholders’ objectives Do not think about competitors when setting objectives. Do not use market share as an objective Do not try to be “number 1” Avoid sports and military analogies Do not use management science techniques that aim to improve market share Experience curve Portfolio matrix method *See competitor-oriented objective experiments and the follow- up study.competitor-oriented objective experiments follow- up study 33 Adprin.com

34. Example: Irrelevant objectives In 1990, when marketing a new dish soap Persil in the U.K., Lever’s goal was to defeat P&G’s Fairy brand. They set a goal of 18 percent market share. Losses were substantial for both companies. Conclusion: Objectives should be relevant to the organization’s objectives –Don’t care how bright or how catchy … nor how much general interest. The key is ‘does it sell?’ What’s the profit of the ad investment?” - L. Thomas of Lord and Thomas Agency (largest U.S. advertising agency in 1905) –Some advertising agencies base their fees on profits generated from the campaign. 34 Adprin.com

35. Comprehensive objectives: Examples Identify all stakeholders: stockholders, creditors, employees, local community, customers Customers’ experience: Subjects were presented with 3 identical jars of peanut butter. One brand was familiar and the other two were unknown. 3/4 preferred the known brand (Hoyer & Brown 1990)Hoyer & Brown 1990 Distributors can benefit from advertising. When Kellogg advertised its Nutri-Grain bars in the U.K. in 1997, independent retailers asked if they could stock them. 35 Adprin.com

36. Explicit objectives State objectives for each of the stakeholder groups (e.g., ROI for stockholders/retailers; safety/satisfaction for consumers) 36 Adprin.com

37. Measurable objectives State quantitative goals “Obtain an ROI of 20% on this advertising investment” State time deadlines “This campaign is expected to produce an ROI of 20% in the first year” Objectives should be ambitious but also attainable 37 Adprin.com

38. Propose objectives for the Bose Wave radio campaign Apply concepts on objective setting. 5 minutes for describing the objectives in your learning diary. 38 Adprin.com

39. End of objectives section The section on objectives is applicable to almost all decision-making in firms. Mission statements typically ignore the evidence-based approach. Applications within your organization? Your family? Read the section on “Objectives” in the PA chapter on Conditions (pg. 15-20). 39 Adprin.com

40. Product-related Conditions Advertisements should be deigned for the type of product. This lecture examines some key conditions. 40 Adprin.com

41. Comparative advantage In the 1950s, the ad agency head, Rosser Reeves, said: “Our problem is that a client comes into my office and throws two newly minted half dollars on my desk, and says ‘Mine is the one on the left. You prove it is better.’” 41 Adprin.com

42. Does your product have a comparative advantage? Q: What branded products have no comparative advantages for any customers? I expect that nearly all products have either real or imagined benefits for some customers. 42 Adprin.com

43. Short written quiz. Do not sign your name & do not yell out your answer. 1. A bat and a ball cost $1.10 in total. The bat costs a dollar more than the ball. How much does the ball cost? ____ 2. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?____ 3, In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long will it take for the patch to cover half of the lake? ____ 43 Adprin.com

44. Results from “Bat & Ball” study Presented to 3,235 students at universities (e.g., MIT, Princeton, Harvard, Carnegie Mellon), with no time limit. –17% correctly answered all three. Range from 50% at MIT to 5% at Michigan State –32% missed all three. Implications for advertising? People can be led astray when their involvement is low (Frederick 2005). “The three questions that could land a job.”Frederick 2005 Beware when you purchase low-involvement goods. * The ball costs 5 cents, the machines will produce the widgets in 5 minutes, and the lake will be half covered in 47 days. 44 Adprin.com

45. Involvement Involvement has been important in advertising since early 1900s. Earlier terms included “short circuit” and “long circuit.” A 2011 on this topic is, Thinking Fast and Thinking Slow. Under “high-involvement” people think about an ad’s claims. Under “low-involvement,” the processing is peripheral -- customers are influenced by seemingly irrelevant considerations. High-involvement products are expensive, or ones that lead to personal risks or to a concern about how they are viewed by the consumers’ peer group, when being considered for purchase. 45 Adprin.com

46. Identifying involvement How would you code the following products on the high vs. low-involvement scale? Code before clicking to see ratings by experts: –The Bose Wave radio Hi –A BMW automobile Hi –Bud Lite beer Lo –Grey Goose vodka Hi –Perfume Hi 46 Adprin.com

47. Utilitarian or hedonic products “Utilitarian” products (sometimes called “problem- solving” or “informational” products) offer utility. “Hedonic” products (sometimes referred to as “transformational” or “feeling” products) offer positive experiences. 47 Adprin.com

48. Coding “Utilitarian” or “Hedonic” products How would you code the following products as to Utilitarian or Hedonic? Code before clicking to see ratings by experts: –The Bose Wave radio U & H –A BMW automobile U & H –Bud Lite H –Grey Goose H –Perfume H & U 48 Adprin.com

49. What should you do when a product can be coded in more than one way? Coding depend upon the target market and the situation. When a product is coded as subject to both conditions, advertisers can include some ads based on hedonic appeals and other ads based on utilitarian appeals. Related evidence suggests that you should not mix these appeals in the same advertisements. See Principle 3.1 in Persuasive Advertising.Persuasive Advertising. 49

50. Commercial or pro-social products When people see an ad for a commercial product, they are more wary than for an ad that relates to a social cause. A pro-social ad, such as “Please help to reduce hunger in Africa,” is less likely to lead to counter- arguing. 50 Adprin.com

51. Conditions: “Pro-social products/ services” Note: The Institute for Justice believes that this restriction violates 1 st amendment free- speech rights. “City officials want to throw us in jail because we give tours and describe things without a license.”

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53. Search, experience, or credence Search: Can check features prior to purchase Experience: Can be evaluated only after use Credence: Cannot be properly evaluated even after use Automobiles are ___________ University educations are _____________ Movies are ___________ 53 Adprin.com

54. Classification examples and answers Automobiles are experience University educations are credence Movies are experience Additional examples of each: Search – checking that a car has four doors Experience – the Bose Wave radio Credence - vitamins 54 Adprin.com

55. Target market conditions Who should be targeted? (e.g., to reduce smoking) For example, who is in the target market for Starbucks? 55 Adprin.com

56. What are some key ways by which to classify target markets for a given product? List at least two two ways in your learning diary to classify interest groups so that it will guide your advertising. Then click for our answers. Interest groups: customers, local community, employees, suppliers, investors, retailers Familiarity: What do they need to know? Attitudes and beliefs consistent with the product? (i.e., does the ad tell you how to do what you want to do?) 56 Adprin.com

57. Target markets for the same product often differ Who should be targeted? For example, to reduce smoking? 1) Smokers? 2) People who live with smokers? 3) People who do not like the smell of smoke and think that it is dangerous for them, and who would like to prohibit smoking? You might want to target different campaigns for each target market. To date, the most successful approach seems to be in targeting the third group. 57 Adprin.com

58. When to do target market research When there is uncertainty about decisions related to: 1.Size of the target market. 2.Characteristics of potential customers. 3.What customers need to know (and what they know already). 4.When they will make decisions. 5.How you can reach them (media decisions). 58 Adprin.com

59. Characteristics of the target market intelligent? able to purchase? business agent or final consumer? old enough to make decisions? current customer? able to see and hear easily? Adprin.com

60. Types of customer decision-makers Some are impulsive and look for immediate gratification Others think about offers and plan ahead Thus, different appeals may work –See the marshmallow studymarshmallow study 60 Adprin.com

61. Target market’s current knowledge and beliefs about the brand Are the target market’s attitudes consistent with your message? Advertising is easier when it reinforces current attitudes: “Here’s how to get what you want.” Is the product new or established? Is it only new to some of the customers? What benefits are they seeking? May need to do target market research. 61 Adprin.com

62. What is news to the target market? “Newness” is important for an advertising campaign. The campaign should change over the life cycle (Chandy et al. 2001).Chandy et al. 2001 Customers need information when a product is new to them, whereas emotional appeals are relatively more effective when the product is well-known. 62 Adprin.com

63. Sources of target market information Experts (managers, manufacturers, retailers) o Small samples (5 to 20) Customers o Large probability samples (mail, phone, mall intercepts, Internet) o Start small and use sequential sampling. o Report to client at each stage so client has control over this phase. 63 Adprin.com

64. Reducing errors in surveys 1.Response error: Use alternative ways of asking the same concept. 2.Non-response error: Obtain a high response rate by enclosing small payments and sending reminders. Estimate trends in responses to key questions over waves. 3.Sampling error: Use large probability samples. 64 Adprin.com

65. Requirements for reporting on surveys 1.Full disclosure of what exactly was done, when, by whom, and findings. 2.Pretesting: No one can get it right the first time. 3.Provide confidence intervals. 4.Demonstrate validity (e.g., ask different questions to get at the same concept, and compare findings from expert and consumer surveys). 5.See the guidelines for presenting results (PA Appendix H, especially under “exhibits”). 6.Follow the procedures in Dillman, Don A.,Mail and Internet Surveys. New York: John Wiley.Mail and Internet Surveys 65

66. Checklist for conditions Objectives Relevant Comprehensive Explicit and challenging? Measurable? Product Comparative advantage? High- or low- involvement? Utilitarian or hedonic? Pro-social? Search, experience or credence? Target Market What interest groups? Familiar with product? Consistent with attitudes? 66 Adprin.com

67. Assessing conditions for the Bose Wave Radio Ask two or more people to independently code the conditions for the Bose Wave Radio. –In some cases, products cannot be easily coded. Compare and discuss (parallel processing). 67 Adprin.com

68. Techniques Relevant to this Lecture Non-directive interviewing Objectives setting Survey research 68 Adprin.com

69. Develop action steps for applications Write a plan in your learning diary for applying at least one technique from this session. Be explicit about what you will do. Set a time deadline for completing the application. Include this in your applications report for this course. Describe your plan and, later, how it turned out. 69 Adprin.com

70. Advice on learning techniques One study found that fewer than 10% of students were successful in applying new knowledge. This went to 20% if they actively applied what they were taught during a class session. It went to 90% when they worked with a learning partner and coached each other. Select techniques to applytechniques 70 Adprin.com

71. Follow-up: Complete prior to next session 1.___Go through this lecture on your own (It is on the Educational Materials page) Educational Materials 2.___Study Persuasive Advertising pages 14-24 and record your reading time in your learning diary. Highlight techniques that you want to apply in yellow.Persuasive Advertising 3.___ Complete the End of Chapter Questions for “Conditions” and check your answers against Persuasive Advertising.End of Chapter Questions Persuasive Advertising 71 Adprin.com