2007 Thomson South-Western

Overview of Advertising Management: Messages, Media, and Measurement

Chapter Nine

2

Is Advertising Rocket Science?

“The truth is that advertising is harder than

rocket science. It’s news when a

rocket launch FAILS.

It’s news when an ad campaign

launch SUCCEEDS.”

3

Advertising

Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future.

Contrast this with a PSA, PR and Product Placement

4

Magnitude of Advertising

2005 $280 Billion

$550 Billion

Worldwide

U.S.

$900 spent on advertising for

every man, woman, and child

in the United States.

5

Some Top Spenders in U.S. Advertisinghttp://adage.com/images/random/lna2007.pdf

Company Advertising Dollars (bn.USD 2006)

Proctor & Gamble 4.89

AT&T 3.34

GM 3.29

Time Warner 3.08

Verizon 2.82

Some Top Spenders in U.S. Advertisinghttp://adage.com/images/random/lna2007.pdf

6

Advertising-to-Sales Ratios

Average 2 to 10%

Ranging from 1.4%

To 30.7%

7

Advertising Effects

Are Uncertain

8

Advertising Effects Are Uncertain

“If you want your brand to be fit, it’s got to exercise regularly. When you get the opportunity to go to the movies or do something else instead of working out, you can do that once in a while—that’s [equivalent to] shifting funds into [sales] promotion. But it’s not a good thing to do. If you get off the regimen, you will pay for it later.”

Jennifer Lawrence, P&G

9

“I know that half the amount I spend on advertising is wasted; The trouble is, I don’t know which half”

Chairman, Unilever Group

10

Advertising Functions

1. Informing 2. Influencing3.Reminding and Increasing Salience 4.Adding Value 5.Assisting Other Company Efforts

11

Informing

• Make consumers aware of new brands.

• Increase TOMA (Top of Mind Awareness)

• Teach new uses for existing brands (called usage expansion advertising) – Campbell’s soup for formal family dinners and

for breakfast – Special K for afternoon or late-night snacking

12

Influencing

13

Reminding and Increasing Salience

• Making a brand more salient: enriching the memory trace for a brand so that the brand comes to mind in relevant choice situations.

• Increasing the customer’s interest in mature brands and the likelihood of choosing brands that might have otherwise not been chosen.

14

Adding Value

• Three ways a company can add value to its offerings: – Innovating – Improving quality – Altering consumer perceptions

15

Assisting Other Company Efforts

• Advertising may be used as a vehicle for delivering coupons and sweepstakes

• Assisting sales representatives

• Pre-selling a company’s products by introducing the product and legitimizing salespeople’s claims.

• Augment the effectiveness of price deals.

16

The Advertising

Management Process

17

The Role of Advertising Agencies

• Three alternative ways to perform the advertising function: – Use an in-house advertising operation– Purchase advertising services on an ad-as-

needed basis – Select a full-service advertising agency

18

TOP 10 CORE AGENCIES WORLDWIDE

By worldwide revenue from traditional advertising in millions of dollars

RANK WORLDWIDE REVENUE

2006

2005

AGENCY HEADQUARTERS 2006 2005%

CHG

1 1 Dentsu [Dentsu Inc.] Tokyo $2,213.

0 $2,165.

9 2.2

2 3 BBDO Worldwide* [Omnicom] New York 1,539.9 1,425.8 8.0

3 2 McCann Erickson Worldwide* [Interpublic]

New York 1,479.2 1,461.1 1.2

4 4 JWT* [WPP] New York 1,286.5 1,245.0 3.3

5 5 DDB Worldwide Communications* [Omnicom]

New York 1,263.9 1,190.6 6.2

6 6 Publicis* [Publicis] New York/Paris, N.Y./France

1,177.8 1,154.2 2.0

7 7 TBWA Worldwide* [Omnicom] New York 1,135.0 950.2 19.4

8 8 Leo Burnett Worldwide* [Publicis] Chicago 909.0 889.1 2.2

9 10 Y&R* [WPP] New York 820.0 788.0 4.1

10 9 Hakuhodo [Hakuhodo DY Holdings] Tokyo 780.0 788.0 -1.0

Notes: Dollars are in millions. (*)Revenue is Ad Age estimate and represents worldwide core-level returns from advertising only for the global network. Figures exclude revenue from non-advertising operations such as direct marketing, sales promotion, interactive, media buying and planning.

19

Ad Agency Lists

• http://adage.com/datacenter/article?article_id=116344

20

Alternative ways to perform the advertising function

• Necessitates employing an advertising staff and absorbing the operation costs

• Unprofitable unless a company does a large amount of continual advertising

In-house advertising operation

21

Alternative ways to perform the advertising function

AdvantagesAdvantages• In-depth knowledge and

skills• Obtaining negotiating

muscle with the media• Coordinating advertising

and marketing efforts

DisadvantagesDisadvantages• Some control is lost• Larger clients are

favored over small clients

• Occasionally inefficient in media buying

Full-service advertising agency

22

Alternative ways to perform the advertising function

AdvantagesAdvantages• Use services only when

they are needed• Availability of high-

caliber creative talent• Potential cost

efficiencies

DisadvantagesDisadvantages• Specialists approach

client problems in a stereotyped fashion

• Lack of cost accountability

• Financial instability of smaller boutiques

A la carte

23

Advertising Agency Organization

• Develop advertising copy and campaigns

• Copywriters, production people, and creative directors

Creative Services

Account Management

Media Services

Research Services

24

Advertising Agency Organization

• Selecting the best advertising media

• Media planners develop overall media strategy

• Media buyers procure the selected media

Creative Services

Account Management

Media Services

Research Services

25

Advertising Agency Organization

• Study clients’ customers’ buying habits, purchase preferences, and responsiveness

• Focus groups, mall intercepts, acquisition of syndicated research data

Creative Services

Account Management

Media Services

Research Services

26

Advertising Agency Organization

• Link the agency with the client

• Act as liaisons so that the client does not need to interact directly with several different service departments and specialists

Creative Services

Account Management

Media Services

Research Services

27

Agency Compensation

•Commissions from media (15%)•Reduced commission system(<15%)

•Labor-based fee system

•Outcome-based

Three Sources

28

Which Position is More Acceptable?

• The Case for Investing: the belief that advertising can increase profitability by increasing sales volume, enabling higher selling prices, and thus increasing revenue beyond the incremental advertising expense.

• The Case for Disinvesting: Firms often choose to reduce advertising expenses either when a brand is performing well or during economic recession. The belief is that an expense reduction, with all else held constant, will result in increased profits.

29

Elasticity

A measure of how responsive the demand for a brand is to changes in marketing variables such as price and advertising.

30

How to Increase Profit

1. Maintain status quo

2. Build Image Via Advertising

3. Grow Volume via Price Discounting

4. Increase Advertising and/or discount prices