Chapter 7 - Summary - Belch and Belch

Establishing Objectives and Budgeting for Promotional Programs

ADVERTISING AND PROMOTIONAL OBJECTIVES                :

Specific goals and objectives are the foundation on which all other promotional decisions are made. Budgeting for advertising and other promotional areas, as well as creative and media strategies and tactics, evolve from these objectives. They also provide a standard against which performance can be measured.

As we know, advertising and promotion are not the only marketing activities involved in generating sales. An important reason for setting specific objectives is that they provide a benchmark against which the success or failure of the promotional campaign can be measured.

Determining Promotional objectives

The situation analysis is the foundation on which marketing objectives are determined and the

Marketing plan is developed. Promotional objectives evolve from the company’s overall marketing plan and are rooted in its marketing objectives. Advertising and promotion objectives are not the same as marketing objectives

Marketing Objectives: Marketing objectives are usually defined in terms of specific, measurable outcomes such as sales volume, market share, profits, or return on investment. For examples, Expanding distribution and sales of product in certain market areas. To be effective, objectives must also be realistic and attainable.

Managers must be able to translate general marketing goals into communications goals and specific promotional objectives.

Situation Analysis

The situation analysis provides important information on

• The market segments the firm wants to target and the target audience

• The product and its main features, advantages, benefits, uses, and applications.

• The company’s and competitors’ brands

• Ideas on how the brand should be positioned and specific behavioural responses being sought

Sales Oriented Objectives:

Many managers believe that money spent on advertising and other forms of promotion should produce measurable results, such as increasing sales volume by a certain percentage or dollar amount or increasing the brand’s market share.

In the business world, poor sales results can be due to any of the other marketing mix variables, including product design or quality, packaging, distribution, or pricing. Advertising can make consumers aware of and interested in the brand, but it can’t make them buy it, particularly if it is not readily available or is priced higher than a competing brand.

Direct-response advertising is one type of advertising that evaluates its effectiveness on the basis of sales. Sales-oriented objectives are also used when advertising plays a dominant role in a firm’s marketing program and other factors are relatively stable.

Communication Objectives:

Sometimes retailers may also allocate advertising and promotional dollars to image-building campaigns designed to create and enhance favourable perceptions of their stores. In this case, sales-oriented objectives would not be appropriate.

Another example is when Hitachi designed to inform consumers of the speed and reliability of the company’s products and technologies. Communications-based objectives use tri-component models where consumers pass through three successive stages: cognitive, affective, and conative. As consumers proceed through the three stages, they move closer to make a purchase

Advertising and promotion perform communications tasks by first accomplishing lower-level objectives such as awareness and knowledge or comprehension and subsequently move towards the purchase. If awareness levels for a brand and knowledge of its features and benefits are low, the communications objective should be to increase them. If these blocks of the pyramid are already in place, but liking or preference is low, the advertising goal may be to change the target markets’ image of the brand and move consumers through to purchase. In attempting to translate sales goals into specific communications objectives, promotional planners often are not sure what constitutes adequate levels of awareness, knowledge, liking, preference, or conviction. There are no formulas to provide this information.

DAGMAR model:

DAGMAR is an approach to setting objectives. It is defined as Defining Advertising Goals for Measured Advertising Results (DAGMAR). It was proposed by Russell Colley. Colley proposed that the communications task be based on a hierarchical model of the communications process with four stages:

• Awareness—making the consumer aware of the existence of the brand or company.

• Comprehension—developing an understanding of what the product is and what I will do for the    consumer.

• Conviction—developing a mental disposition in the consumer to buy the product.

• Action—getting the consumer to purchase the product.

Attributes of the Objectives

·         Concrete and Measurable Tasks

·         Defined Target Audience

·         Benchmark the present status concerning response hierarchy variables

·         Determine the degree to which consumers must be changed by the advertising campaign

·         Specify the time period in which the objective needs to be achieved

Establishing the Budget

Many managers treat the communications budget as an expense rather than an investment. Instead of viewing the dollars spent as contributing to additional sales and market share, they see budget expenses as cutting into profits. As a result, when times get tough, the advertising and promotional budget is the first to be cut.

Marginal Analysis:

As advertising/promotional expenditures increase, sales and gross margins. Also increase to a point, but then they level off. Profits are shown to be a result of the gross margin minus advertising expenditures. Using this theory to establish its budget, a firm would continue to spend advertising/promotional dollars as long as the marginal revenues created by these expenditures exceeded the incremental advertising/promotional costs. The optimal expenditure level is the point where marginal costs equal the marginal revenues they generate (point A). If the sum of the advertising/promotional expenditures exceeded the revenues they generated, one would conclude the appropriations were too high and scale down the budget. If revenues were higher, a higher budget might be in order.

Sales Response Models:

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 as a result of the advertising. Thus, according to the concave-downward function model, the effects of advertising quickly begin to diminish.

Budgeting Approaches:

The Affordable Method: In the affordable method (often referred to as the “all you-can-afford method”), the firm determines the amount to be spent in various areas such as production and operations. Then it allocates what’s left to advertising and promotion, considering this to be the amount it can afford. The task to be performed by the advertising/promotions function is not considered, and the likelihood of under- or overspending is high, as no guidelines for measuring the effects of various budgets are established.

The Arbitrary Allocation: The budget is determined by management solely on the basis of what is felt to be necessary.

Percentage of Sales: This method is most commonly used. In this method, the advertising and promotions budget is based on sales of the product. Management determines the amount by either (1) taking a percentage of the sales dollars or (2) assigning a fixed amount of the unit product cost to promotion and multiplying this amount by the number of units sold.

Competitive Parity: In the competitive parity method, managers establish budget amounts by matching the competition’s percentage-of-sales expenditures.

Return on Investment: Here, the advertising and promotions are considered investments, like plant and equipment. Thus, the budgetary appropriation (investment) leads to certain returns. Like other aspects of the firm’s efforts, advertising and promotion are expected to earn a certain return.

Objective and Task Method: It uses a build-up approach consisting of three steps: (1) defining the communications objectives to be accomplished, (2) determining the specific strategies and tasks needed to attain them, and (3) estimating the costs associated with performance of these strategies and tasks. The total budget is based on the accumulation of these costs.

Payout Planning: a payout plan determines the investment value of the advertising and promotion appropriation. The basic idea is to project the revenues the product will generate, as well as the costs it will incur, over two to three years. Based on an expected rate of return, the payout plan will assist in determining how much advertising and promotions expenditure will be necessary when the return might be expected.

Quantitative Models: These methods employ computer simulation models involving statistical techniques such as multiple regression analysis to determine the relative contribution of the advertising budget to sales.