1. Establishing Objectives and Budgeting for the Promotional Program
Chapter Seven
Establishing Objectives and Budgeting for the Promotional Program
Establishing Objectives and Budgeting for the Promotional Program
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

2. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Value of Objectives
Objectives
Focus &
Coordination
Focus &
Coordination
Plans &
Decisions
Plans &
Decisions
Relation to text This slide relates to material on pp of the text.
Summary Overview This chapter examines the nature and purpose of objects and the role they play in guiding the development, implementation, and evaluation of an IMC program. The value of setting objectives include the following:
Focus and coordination – setting objectives facilitates the coordination of the various groups working on the campaign. The advertising and promotional program must be coordinated within the company, inside the ad agency, and between the two as well as with any other communication agencies involved with the campaign
Planning and decision-making – specific promotional objectives guide the development of the integrated marketing communications plan. They also guide decisions regarding strategic and tactical issues such as creative options, media selection, and budget allocation.
Measurement and control – objectives provide a benchmark against which the success or failure of the promotional campaign can be measured.
Use of this slide This slide can be used to introduce the importance of setting advertising and promotion objectives. Specific objectives are needed to coordinate and guide the development of the promotional program, as well as provide a benchmark against which performance can be measured and evaluated.
Measurement
& Control
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

3. Characteristics of Objectives
Attainable
Attainable
Realistic
Realistic
Measurable
Measurable
Objectives
Relation to text This slide relates to material on pp of the text.
Summary Overview This slide summarizes the characteristics of good objectives and shows that they should be:
Realistic
Attainable
Measurable
Specific
Not mutually exclusive
Use of this slide This slide can be used to discuss the various characteristics of good communication and promotional objectives. While the task of setting good objectives can be complex and difficult, it must be done properly as specific objectives are the foundation upon which all advertising and promotional decisions are made.
Not Mutually Exclusive
Specific
Specific
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

4. Advertising Can Shape Corporate Images
Relation to text This slide relates to the material on pp
Summary Overview This slide shows an ad for Ford that is designed to inform readers of the efforts the company takes in the fight against breast cancer.
Use of this slide This ad can be used to demonstrate how companies have different objectives for their advertisements. The objective of corporate advertising for companies such as Ford Motor Company is to enhance their image and generate goodwill rather than to directly generate sales.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

5. Marketing Versus Communications Objectives
Marketing 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
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
Relation to text This slide relates to material on pp of the text which discusses marketing and communication objectives.
Summary Overview Communications objects are not the same as marketing objectives. This slide summarizes the differences between the two.
Marketing objectives
Stated in the firm’s marketing plan
Statements of what is to be accomplished by the overall marketing plan
Measurable outcomes such as sales, market share, ROI over a specific period of time
Must be realistic and attainable
Communications objectives
Derived from the overall marketing plan
Generally more narrow than marketing objectives
Based on the particular communications task required to deliver the appropriate messages to the target audience
Are focused on a specific target audience
Use of this slide This slide can be used to discuss the differences between marketing objectives and communications objectives. Communications objectives evolve from the companies overall marketing plan and should be based on the marketing and promotional issues facing the company or brand.
Vs.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

6. Many Different Factors Affect Sales
Distribution
Advertising and promotion
Technology
Competition
The
economy
Product
quality
Price
Relation to text This slide relates to material on pp and Figure 7-1 of the text.
Summary Overview Many marketers take the position that the basic reason a firm spends money on advertising and promotion is to sell its products. As such, sales or other sales related measures are often used as communications objective. One of the difficulties of using sales as a communication objective is that sales are a function of many factors, not just advertising and promotion. This chart shows the various factors that can affect sales which include:
advertising and promotion
competition
product quality
distribution
technology
price policy
the economy
Use of this slide This slide can be used to discuss marketers’ use of sales as communication objectives. While it is generally accepted that advertisers need to think in terms of how the promotional program will influence sales, the success or failure of the advertising campaign cannot always be based on sales. You can use this slide to discuss the various factors that can influence sales other than advertising and promotion.
Advertising and promotion
Competition
Product
quality
Distribution
Technology
Price
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

7. Direct Response Ads Seek Sales
Relation to text This slide relates to material on pp and Exhibit 7-5 of the text.
Summary Overview This slide shows an example of a direct-response advertising message. The direct response advertiser, in this case Skytel, generally sets objectives and measures success in terms of sales response generated by the ad. The effectiveness of the ad can be measured by the number of responses received and whether they result in sales of the product.
Use of this slide This slide can be used as an example of a direct response type advertising message. For this form of advertising, sales results are an appropriate objective.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

8. Some Communications Use Nontraditional Methods
Relation to text This slide relates to material on pp and Exhibit 7-4 of the text.
Summary Overview This slide shows an ad for MINI USA. Extremely low brand awareness necessitated the development of a nontraditional campaign that would uniquely position the MINI brand and break through the cluttered automotive advertising environment.
Use of this slide This slide can be used to discuss communications-oriented objectives versus sales-oriented objectives. It is an example of an ad that is attempting to create an image and favorable impressions of the company rather than generating immediate sales.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

9. Sales As Advertising Objectives
Relation to text This slide relates to material on pp and Exhibit 7-6 of the text.
Summary Overview This slide shows an ad for Pier 1 imports and its advertising of a back to school sale designed to increase sales. This ad is intended to attract consumers to stores during the sales period to generate a greater sales volume. Sales management can evaluate the effectiveness of its promotional effort by analyzing the store traffic and sales volume during the sale days and comparing them to figures for non-sales days.
Use of this slide This slide can be used to show an example of a form of advertising that can be evaluated on the basis of sales. Retail advertising is often action-oriented and promotes events such as sales that are designed to get consumers to respond during a specific time period.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

10. Advertising and Movement Toward Action
Conative
Realm of motives.
Ads stimulate or direct desires.
Purchase
Conviction
Preference
Liking
Knowledge
Awareness
Point of purchase
Retail store ads, Deals
“Last-chance” offers
Price appeals, Testimonials
Affective
Realm of emotions.
Ads change attitudes and feelings
Competitive ads
Argumentative copy
Relation to text This slide relates to material on pp and Figure 7-2 of the text.
Summary Overview This slide shows a chart of the various steps in the hierarchy of effects model of advertising developed by Lavidge and Steiner. The model shows the various steps the consumer moves through from awareness to purchase, along with examples of various types of promotion or advertising relevant to each step. As consumers move through the three stages they become closer to making a purchase, which is the ultimate goal of marketers.
Use of this slide This slide can be used to explain the hierarchy of effects model and show the various steps consumers move through from awareness to purchase. The examples of the various types of promotion or advertising relevant to the various steps are included to show the promotional programs that can influence the consumers’ movement. This model is often used as a basis for communication objectives by agencies and marketers.
“Image” copy
Status, glamour appeals
Cognitive
Realm of thoughts.
Ads provide information and facts.
Announcements
Descriptive copy
Classified ads
Slogans, jingles, skywriting
Teaser campaigns
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11. Image Ads Can Have a Strong Effect on Preference
Relation to text This slide relates to material on pp and Exhibit 7-7 of the text.
Summary Overview This slide shows an ad for Philips, which was designed to inform customers of the company’s focus on technology that makes sense and is simple. The ad creates favorable impressions about the company by creating a distinct image.
Use of this slide This slide can be used to discuss how some advertisements do not require immediate action on the part of the consumer, but encourage consumers to consider this brand when they enter the market for products in this category.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

12. Pyramid of Communications Effects
20% Trial
Conative
5% Use
20% Trial
40% Liking
Affective
25% Preference
25% Preference
Relation to text This slide relates to material on pp and Figure 7-3 of the text.
Summary Overview This slide is a chart of the communications effect pyramid. It shows that advertising and promotion perform communications task in the same way a pyramid is built, by first accomplishing the lower-level objectives such as awareness and knowledge. Subsequent tasks involve moving consumers who are aware of or knowledgeable about the product or service to higher levels in the pyramid. The initial stages, at the base of the pyramid, are easier to accomplish than those toward the top, such as trial and repurchase or regular use. Thus, the percentage of prospective customers will decline as they move up the pyramid.
Use of this slide This slide can be used to discuss the effects of communications. Marketing communications such as advertising are designed to move customers from awareness to purchase, but marketers are aware that this will not happen immediately. As such, advertisers set their communications objectives in relation to where the target audience lies with respect to the various blocks of the pyramid. An example of how the communications effects pyramid can be used to set objectives is provided in Figure 7-4 of the text.
40% Liking
90% Awareness
Cognitive
70% Knowledge
70% Knowledge
90% Awareness
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

13. Balancing Objectives and Budgets
What we’re willing and able to spend
What we need to achieve our objectives
Relation to text This slide relates to material on pp of the text.
Summary Overview This slide introduces the advertising budgeting process. Two questions advertisers begin with when establishing the budget are:
What are we willing and able to spend?
What do we need to spend to achieve our objectives?
No organization has an unlimited budget to spend on advertising, so objectives must be set with the budget in mind.
Use of this slide This slide can be used as an introduction to the budgeting process. It can also be used to discuss the issues concerning what marketers are willing and/or able to spend on advertising and promotion and what they need to spend to achieve their objectives.
Dollars
Goals
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

14. BASIC Principle of Marginal Analysis
Increase Spending
If the increased cost is less than the incremental (marginal) return
Hold
Spending
If the increased cost is equal to the incremental (marginal) return.
Relation to text This slide relates to material on pp of the text.
Summary Overview This slide summarizes the basic principles of marginal analysis. Some logical assumptions from the graph regarding advertising spending are:
Increase spending if the increased cost is less than the incremental return
Hold spending if the increased cost is equal to the incremental return
Decrease spending if the increased cost is more than the incremental return
Use of this slide This slide can be used to further explain the use of marginal analysis for budgeting purposes. Some basic principles of when advertising spending should be changed are shown.
Decrease Spending
If the increased cost is more than the incremental (marginal) return
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

15. Assumptions for Marginal Analysis
Sales are the result of advertising and promotion, and nothing else
Sales are the principal objective of advertising and promotion
Relation to text This material relates to material on pp. 212 of the text.
Summary Overview This slide summarizes two basic assumptions of marginal analysis that must be considered when using the concept to determine the advertising budget. These assumptions are as follows:
Sales are a direct result of advertising and promotional expenditures and nothing else. Many marketers feel that it is very difficult to measure the influence of advertising on sales which limits the value of marginal analysis. Advertising and promotion are rarely the only factors that are responsible for sales as other elements of the marketing mix including product/service factors, price, and distribution all contribute to the success of the company.
Sales are the principal objective of advertising and promotion. Marginal analysis assumes that sales are the principal objective of advertising and promotion. As discussed in this chapter, marketers can have a variety of other objectives for their advertising and promotion programs.
Use of this slide This slide can be used to show the basic assumptions related to the use of marginal analysis as an advertising budgeting method. Because of the difficulties associated with using marginal analysis it is seldom used as a basis for budgeting (except for direct response advertising).
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

16. Advertising Sales/Response Functions
Incremental Sales
Advertising Expenditures
A. Concave-Downward Response Curve
Incremental Sales
Advertising Expenditures
Range A
Range B
Range C
B. S-Shaped Response Function
High Spending
Little Effect
Initial Spending
Middle Level
High Effect
Relation to text This slide relates to material on page and Figure 7-10 of the text.
Summary Overview This slide show two models of the advertising/sales response function. The relationship between advertising and sales has been the topic of much research and discussion designed to determine the shape of the response curve. Almost all advertisers subscribe to one of two models of the advertising/sales response function:
The concave-downward function which assumes that the effects of advertising spending follow the microeconomic law of diminishing returns. That is, as the amount of advertising increases, its incremental value decreases. The logic is that those with the greatest potential to buy will likely act on the first (or earliest) exposures, while those less likely to buy are not likely to change a s a result of the advertising.
The S-shaped response function which assumes that initial outlays of the advertising budget have little impact (range A). However, after a certain budget level has been reached (range B) advertising and promotional efforts begin to have an effect, as additional increments of expenditures result in increased sales. This incremental gain continues only to a point. When advertising expenditures enter range C, incremental spending will have little additional impact on sales.
Use of this slide This slide can be used to explain the two models of the advertising sales/response function. Although there are some weaknesses associated with these models of the sales/response function, they do provide managers with a theoretical basis of how the relationship between advertising spending and sales might work.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

17. Top-Down Budgeting Top Management Sets the Spending Limit
The Promotion Budget Is Set to Stay Within the Spending Limit
Relation to text This slide relates to material on pp of the text.
Summary Overview This slide outlines the top-down approach to budgeting. In this approach the budgetary amount is established by management and then the monies are allocated to the various departments. The goal of this method is usually to insure that the promotional budget is set to stay within limits set by top management. When this approach to budgeting is used spending levels are essentially predetermined and have no true theoretical basis.
Use of slide This slide can be used to introduce the top-down approach to setting the advertising and promotion budget. Specific top down methods are shown in the next slide.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

18. Top-Down Budgeting Methods
Competitive Parity
Competitive Parity
Arbitrary Allocation
Arbitrary Allocation
Percentage
of Sales
Percentage
of Sales
Top
Management
Relation to text This slide relates to material on pp of the text.
Summary Overview This slide shows the various top-down budgeting methods. They are:
Arbitrary allocation – budget is set by management based on what is felt to be necessary. No theoretical basis underlies the budgeting process.
Competitive parity – setting budgets on the basis of what competitors spend. Usually accomplished by matching the same percentage of sales expenditures as competitors.
Percentage of sales – advertising and promotion budget is based on the sales of product. Determined by either taking an amount based on a percentage of sales revenue sold or anticipated revenue from sales.
Affordable method – the firm determines the amount to be spent on the various areas such as production and operations and then allocates what is left to advertising and promotion.
Return on investment – advertising and promotions are considered investments, and the budget appropriation is based on the returns the company feels it will generate from advertising
Use of this slide This slide can be used to discuss the various top-down budgeting methods. While these methods have their advantages and disadvantages, they are popular because of tradition and top managements desire for control. Studies have shown the percentage of sales and arbitrary method to be most popular.
Return on
Investment
Affordable Method
Affordable Method
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

19. Bottom-Up Budgeting Total Budget Is Approved by Top Management
Cost of Activities are Budgeted
Cost of Activities are Budgeted
Relation to text This slide relates to material on pp and Figure 7-13 of the text.
Summary Overview The slide outlines the bottom-up approach to budgeting. This approach is based on the consideration of a firm’s communications objectives before the budget is set. Once the communication objectives are determined a budget is developed to attain these goals. The specific steps of this approach are:
Promotional objectives are set
Activities to achieve objectives are planned
Cost of activities are budgeted
Top management approves total budget
Use of this slide This slide can be used to introduce a bottom-up approach to budgeting. The main advantage of using this approach is that the budget is driven by the objectives to be attained rather than some predetermined amount management is willing to spend.
Activities to Achieve Objectives
Are Planned
Activities to Achieve Objectives
Are Planned
Promotional Objectives Are Set
Promotional Objectives Are Set
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

20. Objective and Task Method
Establish Objectives
(create awareness of new product among 20 percent of target market)
Establish Objectives
(create awareness of new product among 20 percent of target market)
Determine Specific Tasks
(advertise on market area television and radio and local newspapers)
Determine Specific Tasks
(advertise on market area television and radio and local newspapers)
Relation to text This slide relates to material on pp and Figure 7-19 of the text.
Summary Overview This slide outlines the three steps of the objective and task method of budgeting. This method reflects a bottom-up approach to budgeting and involves the following steps:
Establishing objectives – specific communication objectives to be achieved are established
Determine specific tasks – determine the specific tasks needed to accomplish the communication objectives. May include advertising in various media, developing programs involving sales promotions and/or other elements of the promotional mix.
Estimate costs associated with tasks – determining what it will cost to perform the specific tasks that must be performed to achieve the objectives.
Monitor – performance should be monitored and evaluated in light of the budget appropriated.
Reevaluate objectives – once specific objectives have been attained, monies may be better spent on new goals.
Use of this slide This slide can be used to discuss the objective and task method of setting the advertising and promotion budget. The main advantage of using this approach is that the budget is driven by the objectives to be attained rather than some predetermined amount management is willing to spend. A disadvantage of this method is the difficulty in determining which tasks will be required and the costs associated with each.
Estimate Costs Associated with Tasks
(determine costs of advertising, promotions, etc.)
Estimate Costs Associated with Tasks
(determine costs of advertising, promotions, etc.)
Monitor and Adjust
(monitor performance and adjust)
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

21. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Media Expenditures
Relation to text This slide relates to material on pp and Figure 7-23 of the text.
Summary Overview This slide demonstrates where advertising expenditures were allocated in 2004.
Use of this slide This slide can be used to discuss why advertisers are shifting some of their budget dollars away from traditional advertising media and into sales promotions targeted at both the consumer and the trade.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

22. Are There Economies of Scale?
No evidence to support this!
Proposition I
Larger firms can support their brands with lower relative
advertising costs than smaller firms.
No evidence to support this!
Proposition II
The leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands.
Relation to text This slide relates to material on p. 231 of the text.
Summary Overview Economies of scale in advertising refer to the advantages that larger advertisers have relative to their smaller competitors. One advantage of larger firms with larger market share is they can spend less money on advertising and realize a better return. Another, is they are able to enjoy more favorable time and space positions, cooperation of middlepersons, and favorable publicity. In actuality, studies have shown this not to be true and in fact larger brand share products might be at a disadvantage. The leading brands spend on average of 2.5% more than their brand share on advertising.
Use of this slide This slide can be used to introduce the concept of economies of scale in advertising. Despite some evidence supporting the notion of economies of scale in advertising, most research has concluded that there are no real economies of scale to be accrued from the size of the firm or the market share of the brand.
No evidence to support this!
Proposition III
There is a static relationship between advertising costs per dollar of sales and the size of the advertiser.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin