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7

Establishing Objectivesand Budgeting for thePromotional Program

7-2

Setting Objectives

• Obstacles to setting objectives• Complex marketing situations• Conflicting perspectives• Uncertainty over resources

7-3

Value of Objectives

Measurement/EvaluationMeasurement/Evaluation

Planning & Decision MakingPlanning & Decision Making

Communications Communications

Specific Objectives

7-4

Characteristics of Objectives

Specific

Measurable

Quantifiable

Attainable

Realistic

7-5

Sales vs. Communications Objectives

SalesObjectives

•Primary goal is increased sales

•Requires economic justification

•Should produce quantifiable results

Communications Objectives

• Increased brand knowledge, interest, favorable attitudes and image

• Immediate response not expected

•Goal is creating favorable predispositions

7-6

Problems with Sales Objectives

Won’t work in isolation

Ad effects take time

Hard to determine precise relationship between advertising and sales

Offers little guidance to those planning and developing the

promotional program

7-7

Factors Influencing Sales

Competition Technology

The economy

Product quality

PriceDistribution

Advertising & promotion

7-8

Where Sales Objectives are Appropriate

7-9

Test Your Knowledge

Which of the following statements about communications objectives is true?

A) Sales goals are easily translated into communications objectives.

B) It can be difficult to determine the relationship between communications objectives and sales performance.

C) Communications objectives cannot serve as operational guidelines for planning,

executing, and evaluating promotional programs.

D) Marketing managers often do not recognize the value of setting communications objectives.

7-10

Communications Objectives

Purchase

Purchase intentions

Favorable attitudes and image

Brand knowledgeand interest

Brand awareness

Conative (behavioral)Ads stimulate or

direct desires

Affective (feeling)Ads change attitudes

and feelings

Cognitive (thinking)Ads provide

information and facts

7-11

Creating an Image

7-12

Communications Effects Pyramid

20% TrialCon

ativ

e 5% Use

90% AwarenessCog

nitive

70% Knowledge/comprehension

40% LikingAffec

tive 25% Preference

7-13

GfK Purchase Funnel

7-14

Problems With Communications Objectives

• Translating sales goals into communications objectives• What is adequate level of awareness,

knowledge, liking, preference, or conviction?

• No formulas or guidelines

7-15

The DAGMAR Approach

Define

Advertising

Goals for

Measuring

Advertising

Results ActionAction

AwarenessAwareness

ConvictionConviction

ComprehensionComprehension

7-16

Characteristics of Objectives

Concrete, measurable tasks

Benchmarkmeasures

Well-definedaudience

Specifiedtime period

7-17

Criticisms of DAGMAR

Inhibits creativityInhibits creativity

Problems with response hierarchyProblems with response hierarchy

Only relevant measure is salesOnly relevant measure is sales

Costly and time consumingCostly and time consuming

7-18

Advertising-Based View of Marketing

Acting on Consumers

Ads

7-19

Utilizing a Variety of Media

7-20

Balancing Objectives and Budgets

What we’re willing and

able to spend

What we need to achieve our

objectives

7-21

Establishing the Budget

To whom should we allocate the

monies?

How much should we spend on advertising

and promotion?

7-22

Budget Decisions in a Down Economy

When times get tough, advertising and promotional budgets are the first to be cut

7-23

Marginal Analysis

7-24

Weaknesses of Marginal Analysis

Sales are determined

solely by advertising and

promotion.

Sales are a direct measure of advertising

and promotions efforts.

7-25

Test Your Knowledge

In marginal analysis, all of the following should be considered except:

A) Sales

B) Fixed costs of advertising

C) Advertising expenditures and other variable costs

D) Gross margin

E) Net worth

7-26

Budget Adjustments

Increase SpendingIncrease Spending If cost is less than the

marginal revenue generatedIf cost is less than the

marginal revenue generated

HoldSpending

HoldSpending

If the cost is equal to the marginal revenue generated

If the cost is equal to the marginal revenue generated

Decrease SpendingDecrease Spending

If the cost is more than the marginal revenue generatedIf the cost is more than the

marginal revenue generated

7-27

Sales Response ModelsIn

crem

en

tal S

ale

s

Advertising Expenditures

A. Concave-Downward Response Curve

Incr

em

en

tal S

ale

s

Advertising ExpendituresRange A Range B Range C

B. S-Shaped Response Function

Hig

h S

pendin

gLi

ttle

Eff

ect

Init

ial Sp

endin

gLi

ttle

Eff

ect

Mid

dle

Level

Hig

h E

ffect

7-28

Factors Influencing Advertising Budgets

Purchasefrequency

Product life cycle

Productdurability

Differentiation

Productprice

Hidden productqualities

7-29

Top-Down vs. Bottom-Up Budgeting

7-30

Top-Down Budgeting Methods

TopManagement

TopManagement

AffordableMethod

AffordableMethod

CompetitiveParity

CompetitiveParity

Percentage of Sales

Percentage of Sales

Return onInvestmentReturn on

InvestmentArbitraryAllocationArbitraryAllocation

7-31

Build-Up Approaches

• Objective and Task Method• Define communications objectives to be

accomplished• Determine specific strategies and tasks

needed to attain them• Estimate costs associated with

performance of these strategies and tasks

7-32

Implementing the Objective and Task Approach

Isolate objectivesIsolate objectives

Reevaluate objectivesReevaluate objectives

Determine tasks requiredDetermine tasks required

Estimate required expendituresEstimate required expenditures

MonitorMonitor

7-33

Payout Planning

7-34

Allocating to IMC Elements

7-35

Other Budget Allocation Factors

• Budgeting Factors• Client/agency policies• Market size• Market potential• Market share goals

7-36

Economies of Scale

There is no evidence to support any of these!

Proposition ILarger firms can support their brands with lower relative advertising costs than smaller firms.

Proposition IIThe leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands.

Proposition IIIThere is a static relationship between advertising costs per dollar of sales and the size of the advertiser.

7-37

Organizational Characteristics

• Factors that influence advertising and promotion budgets• The organization’s structure• Power and politics• The use of expert opinions• Characteristics of the decision maker• Approval and negotiation channels• Pressure on senior managers to arrive

at the optimal budget