AM-Session 25

8/7/2019 AM-Session 25

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You are Given hand outs, sit in groups andanswer following :

How body language and attire affectsyour personality and communication?

Are they important part in Business

world?What kind of posture do you think you

will appreciate from a person coming

to you and wanting to do business withyou? Why?


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Self Answering

What kind of posture you think is deliveringfollowing messages :

Not ready to change Close for communication

Scared ComfortableOpen to learning and positiveWelcoming changes

Do you think you also belong to some of thesechoices? Which once? Be honest to self If anything, what would you like to change

about your body language?


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Session 25Budgeting : Advertisements


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I know half the money I spend onadvertising is washed, but can NEVERfind out which half(John

Wanamaker, founder of a departmentstores)


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Economic Marginal Analysis Marginal Revenue? Incremental Expenditure?

Optimal Price? MC=MR So for every incremental cost added to

advertisement (every Rs added) the

marginal revenue should exceed the cost(so every ad thus produce must becapable of generating more than thecost: say 1:5 ratio)


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How long to add in advertising ?

Till Incremental expenditure exceeded bythe marginal RevenueSales potential /account increasing

(Industrial products)

Very high levels of competitionOther factor market mix components (If

sum of expenditure exceeds theavailable resources, then marketingbudget for each must be scaled down)

Sales promotionPersonal sellingDistributionPricing


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Some more conditions : Which phase in PLC advertising is a required

function? What will be the impact on Elasticity of Sales

in response to Price cuts? In which phase of PLC price cut is a preferred

option? Which is better :

Price discounting or Advertising increase? How about having bigger no. of Industrial

sales accounts? what will be a betterchoice : Personal calling or Advertising cost?

If 1Rs of advertising lead to an equalincrease in sales volume of TWO Brands,

which brand will you allocate for more


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Gross Margin?what do you mean by Gross margin of

40%?

What it is used for?Contribution Margin?

If you determine that the contribution

margin for product A is 40% , which islower than that of product B?

What will you do to improve its CM?


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Some problems of Marginal Concept :

Advertising is considered as SalesfunctionAdvertising is considered as the ONLY

input and IMMEDIATE Sales OUT put

How about other factors :Condition of Market?Change in competitive environment?

Using Advertising as function of Sales:

Strong creative ad vs tasteless, miss-directed ad with same expenditurelevels

Selection of target market for adThe message strategy


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Advertising as Immediate tool for Sales :Good for direct mail response, coupon

stimulated responses

Most instances considerable lack in timeof advertising and the time of sales


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Case 1st : % of Sales or of Gross MarginAd budget based on past experience

utilizing % of Sales

Eg : A brand has devoted 3% ofbudget to advertising in past for a

given qt, so if for next year the plancalls for say 30,00, 000/- worth ofbusiness, the share of Ad will be

90,000 for the qtrWhat are the flaws?


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Excessive expenditure in case of large establishedbrands

Keep serving loyal customers, who otherwise willalso buy the brand (in absence of ad)

Inadequate budget for promising brand that havepotential to become competitive by advertising Ignore brand profitability, as only brand sales is

considered More logical method could be to use brands GM or

% contribution to-overhead What happen when :

Brand is making major positioning move? Becomes established and dominant? Brand is just introduced?


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Competitive Parity and Share -of-Voice Need to adjust to competitor ads There is Norm for Industry optimal for ad budget and

any departure from optimal will lead to warconditions

You are Manager Marketing Pepsico for North India,asked to forecast the budget required in your regionfor advertisement for coming up season.

Based on your understanding of Competitive Parityand share of voice, what will be your possibleforecast ?

Following data is given to you by your analysts : Market optimal in advertising expenditure for North

India is 1.5 crs for the season The Share of Voice (Brands share of total category

advertising(between all brands in the market) is23%

The Share of Market(SOM) is 0.9% lower than SOV foryour brands

You VP India has indicated that Pepsico has plans tointroduce their new brand extension Pepsi Chilli in


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Is there a guarantee, that Coke will alsoinvest the same amount of ad cost aswhat you will, for next year/season?

Are there impacts of market conditions?Recession?

How about situations of individual firms?Are they same as that of competitor?

How about Share of Market (SOM) for thebrand? What should be higher SOV orSOM?

What if you have lower SOM for anestablished brand?


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Market Experimentation and Budgeting

A direct method of estimating salesresponse to advertising

Ad expenditure are deliberately and

systematically varied across area andSales changes are monitored1960s Budweiser conducted field exp

and varied ad expenditure from -100(no advertising) to 0 (Advertisingunchanged) to +200%


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Advertising and Sales, Budweiser beer


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Results and interpretations

less advertising is better? When ?

What types of ads will or can probablyshow this impact?

Think about ONE of the Surf Excel Ad:which strategy will be better?To have frequent exposure of it or to have

fewer exposure?What will/can increase the sales?


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What is the impact of Media mix on suchexperiments?Like seasonal efforts/plans

Mix of productsAvailability of productExploring new customers not reached

previously

Analyzing and restating or re-groupingtarget segments Is it good to repeat what customer already

know about your brand or better to havesomething novel?

How about tailoring ads for local market


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Split-Cable testing

Ad weight: Increasing Ad budget withsimultaneous increase in changes incopy or brand strategy or a new target

segment with a changed media plan


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Other Marketing Mix Ad and price levels:

Heavy ad weight + base priceHeavy ad weight + 10p+ Base priceHeavy ad weight +20p+ base price

Which one should be more effective andefficient? Measuring other variables along with

Advertising variable is very important

These variables are called as Covariates The sales effects of covariates can be further

use to vary the ad weight


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Problems with Market Experimentation Direct cost of setting up exp, collecting and

analyzing Management decisions are delayed Timelines is a problem for research for getting near

perfection results Less likelihood that situations wil change? Security cost for new products Imbalance advertising in some areas, in some below

optimal and the cost will be ..? Controlled market experimentation is problem Companies sales force will work extra hard to get

the results, impacting the actual findings Retailers can run out of stock due to offers etc

negative impact How about those areas where the testing has been

at optimal or below optimal levels?

Imbalance in the competitors market, jagocompetitors there counter action will impact the


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Current methods generally used in Market

1. The Percent of Sales Method:

The advertising campaignbudget is a constant percentage of desired sales. A carmanufacturer may spend less than 1% of sales, while a smallretailer may budget 3 -7% of sales. A jewelry store may budget 8-12% of sales, and other companies may budget 20% or more.

This method works as long as the advertising campaign budget isset as a percentage of desired sales. If the budget is set to actual

sales, and sales drop, you do not want to cut your advertisingcampaign budget, or you will get caught in a downward spiral.

2. The Task Objective Method: How much money do you need tospend to reach the specific goals you have outlined for theadvertising campaign? This is especially effective when you arestarting out, or if you are trying to grow rapidly. Some advertisingcampaign strategies call for heavy spending upfront in order to

win long-term customers. 3. The Historical Method: How much did you spend to reach your

sales goals in previous years or periods? You will find that bytracking your ads, you will know in advance what you need to doto accomplish your goals.


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4.Share of Market - Share of Voice: This method linksmarket share to advertising expenditure. A companywith a 20% market share would spend slightly more than20% of the total advertising dollars spent in the marketfor that product or service. For new companies,expenditures would be 1.5 times the desired market

share until that position is attained. [So if you want 20%market share, you spend 30% of total advertising dollarsin that market until you get it].

5.Competitive Parity: With competitive parity you spendin equal amounts to your competitors as a percentage ofmarket share. This is a self-defense method of budgetingmarketing and advertising expenditures.

6. The Combination Method: The best advertisingcampaign budget you can set will be based on somecombination of all of the previous models. You want tomaintain a minimum level of advertising, fulfill specific

goals, maintain your market share, keep up with yourcompetitors, and compare everything to last year.

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AM-Session 25

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