17/03/2016
1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 7 Establishing Objectives
and Budgeting for the
Promotional Program
7-2
Learning Objectives
To recognize the importance and value of setting
specific objectives for advertising and promotion
To understand the role objectives play in the IMC
planning process and the relationship of
promotional objectives to marketing objectives
To know the differences between sales and
communications objectives and the issues
regarding the use of each
7-3
Learning Objectives
To recognize some problems marketers encounter
in setting objectives for their IMC programs
To understand the process of budgeting for IMC
To understand theoretical issues involved in budget
setting
To know various methods of budget setting
17/03/2016
2
7-4
Value of Objectives
Communications
Objectives facilitate coordination of the various
groups
Planning and decision making
Objectives guide decision making and development
of the integrated marketing communications plan
Measurement and evaluation of results
Objectives provide a benchmark to measure success
or failure
7-5
Marketing Objectives versus Integrated
Marketing Communications Objectives
Marketing objectives
• Identify what is to be accomplished
by the overall marketing program
• Defined in terms of specific and
measurable outcomes
• Must be quantifiable, realistic, and
attainable
Integrated marketing communications objectives
• Statements of what various aspects
of the IMC program will accomplish
• Based on the particular
communications tasks required to
deliver the appropriate messages
to the target audience
7-6
Sales-Oriented Objectives
Aim to increase sales
Require economic justification
Required to produce quantifiable results
Based on the achievement of sales results
17/03/2016
3
7-7
Figure 7.1 - Factors Influencing Sales
7-8
Problems with Sales Objectives
Successful implementation requires all marketing elements to work together
• Carryover effect: Monies spent on advertising do not have immediate impact on sales
Advertising has carryover effect
It is difficult to determine precise relationship between advertising and sales
Do not offer much guidance for planning and developing promotional program
7-9
Communications Objectives
Provide relevant information
Create favorable predispositions toward the brand
Set using models wherein consumers pass through
three stages
Cognitive
Affective
Conative
17/03/2016
4
7-10
Figure 7.2 - Communications Effects
Pyramid
7-11
Problems with Communications
Objectives
Translating sales goals into communications
objectives
Promotional planners have difficulty estimating
what constitutes adequate levels of awareness,
knowledge, liking, preference, or conviction
No formulas or guidelines
7-12
Defining Advertising Goals for Measured
Advertising Results (DAGMAR)
Communications effects are the logical basis for
advertising goals and objectives to measure success
or failure
Communications task
Performed by and attributed to advertising rather
than marketing factors, includes following stages
Awareness, comprehension, conviction, and action
17/03/2016
5
7-13
Characteristics of Objectives
Present concrete and measurable tasks
Have well-defined target audience
Take into consideration the benchmark and the
degree of change sought
Benchmark measures: Determine target market’s
present position regarding the various response
stages
Specify the time period in which the goals must be
accomplished
7-14
Criticisms of DAGMAR
Problems with the response hierarchy
Sales objectives
Practicality and costs
Inhibition of creativity
7-15
Figure 7.4 - Traditional Advertising-Based
View of Marketing Communications
17/03/2016
6
7-16
Zero-Based Communications Planning
Involves determining:
What tasks need to be done
Which marketing communications functions should
be used and to what extent
Focuses on the task to be done and searches for the
best ideas and media to accomplish
7-17
Figure 7.5 - Objectives and Strategies in
the Social Consumer Decision Journey
Source: Expert interviews; McKinsey analysis
7-18
Figure 7.7 - Conclusions on Research of
Advertising in a Recession
Source: G. Tellis and K. Tellis, “Research on Advertising in a Recession,” Journal of Advertising Research 49, no.3 (2009), pp. 304–27.0
17/03/2016
7
7-19
Establishing the Promotional Budget
Formulated when:
A new product is introduced
Internal or external factors necessitate a change to
maintain competitiveness
Established using economic theory, marginal
analysis, and contribution margin
Contribution margin: Difference between the total
revenue generated by a brand and its total variable
costs
7-20
Marginal Analysis
Increase in advertising/promotional expenditures
increases sales and gross margins to a point, after
which they level off
Weaknesses - Assumes that sales are:
A direct measure of advertising and promotions
efforts
Determined solely by advertising and promotion
7-21
Figure 7.8 - Marginal Analysis
17/03/2016
8
7-22
Figure 7.9 - Advertising Sales/Response
Functions
7-23
Figure 7.10 - Factors Influencing
Advertising Budgets
Note: 1 relationship means the factor leads to a positive effect of advertising on sales;
2 relationship indicates little or no effect of advertising on sales.
7-24
Figure 7.11 - Factors Considered in
Budget Setting
17/03/2016
9
7-25
Figure 7.12 - Top-Down versus Bottom-
Up Approaches to Budget Setting
7-26
Budgeting Approaches: Top-Down
Approaches
Affordable method
•Firm determines the amount to be spent in various areas
Arbitrary allocation
•Budget is determined by management solely on the basis of what is felt to be necessary
Percentage-of-sales method
•Advertising and promotions budget is based on sales of the product
Competitive parity method
•Budget amounts are established by matching the competition’s percentage-of-sales expenditures
•Clipping service: Clips competitors’ ads from local print media
ROI budgeting method
•Advertising and promotions are considered investments, and are expected to earn a certain return
7-27
Figure 7.13 - Alternative Methods for
Computing Percentage of Sales
17/03/2016
10
7-28
Figure 7.15 - Investments Pay Off in
Later Years
7-29
Figure 7.16 - Competitors’ Advertising
Outlays do not Always Hurt
7-30
Figure 7.18 - The Objective and Task
Method
17/03/2016
11
7-31
Objective and Task Method
Advantage
Budget is driven by the objectives to be attained
Disadvantage
Difficult determine which tasks will be required and
the costs associated with each
7-32
Payout Plan
Determines the investment value of the advertising
and promotion appropriation
Projects the revenues a product will generate, as
well as the costs it will incur
Better and logical approach to budget setting than
the top-down approach
7-33
Quantitative Models
Employ computer simulation models involving
statistical techniques
Computer simulation models: Help determine the
relative contribution of the advertising budget to
sales
17/03/2016
12
7-34
Steps to Develop and Implement the
Budget
Employ comprehensive strategy
Develop strategic planning framework that employs an integrated marketing communications philosophy
Develop contingency plans
Focus on long-term objectives
Evaluate effectiveness of programs have to be consistently
7-35
Figure 7.21 - How Advertising and
Promotions Budgets Are Set
7-36
Budget Allocation: Factors to Consider
Allocating to IMC elements
Client/agency policies
Market size
Market potential
Market share goals
17/03/2016
13
7-37
Figure 7.24 - The Share of Voice (SOV)
Effect and Ad Spending: Priorities in Individual Markets
7-38
Economies of Scale
Set of advantages that allows firms to spend less on advertising and realize a better return
7-39
Organizational Characteristics
Factors that influence advertising and promotion budgets
Organizational structure
Power and politics
Use of expert opinions
Characteristics of the decision maker
Approval and negotiation channels
Pressure on senior managers to arrive at the optimal budget