7

Establishing Objectives
and Budgeting for the
Promotional Program

McGraw-Hill/Irwin

Copyright 2012 McGraw-Hill Companies, Inc., All right reversed

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

7-2

Value of Objectives

Measurement/Evaluation
Measurement/Evaluation
Planning
Planning &
& Decision
Decision Making
Making
Communications
Communications
Specific Objectives

7-3

Characteristics of Objectives
Specific

Attainable

Realistic

Measurable

Quantifiable
7-4

Sales vs. Communications Objectives

Sales
Objectives
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
7-5

Problems with Sales Objectives

Wont 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

7-6

Factors Influencing Sales

Competition

Technology

The
economy

Advertising
& promotion

Product
quality
Distribution
Price

7-7

Where Sales Objectives are Appropriate

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

Conative
(behavioral)
Ads stimulate or
direct desires
Affective (feeling)
Ads change attitudes
and feelings
Cognitive (thinking)
Ads provide
information and facts

Purchase
Purchase intentions
Favorable attitudes
and image
Brand knowledge
and interest
Brand awareness

7-11

Creating an Image

7-12

5% Use
20% Trial

25% Preference

Co
gn

i ti
ve

Af

fe

ct
iv

Co
n

at

iv
e

Communications Effects Pyramid

40% Liking

70% Knowledge/comprehension
90% Awareness

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

Awareness
Awareness
Comprehension
Comprehension

Conviction
Conviction
Action
Action

7-16

Characteristics of Objectives

Concrete,
measurable tasks

Well-defined
audience

Benchmark
measures

Specified
time period
7-17

Criticisms of DAGMAR

Problems
Problems with
with response
response hierarchy
hierarchy
Only
Only relevant
relevant measure
measure is
is sales
sales
Costly
Costly and
and time
time consuming
consuming
Inhibits
Inhibits creativity
creativity

7-18

Advertising-Based View of Marketing

Ads

Acting on Consumers
7-19

Utilizing a Variety of Media

7-20

Balancing Objectives and Budgets

What were
willing and
able to spend

What we need
to achieve our
objectives

7-21

Establishing the Budget

How much
should we spend
on advertising
and promotion?

To whom should
we allocate the
monies?

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 a
direct measure
of advertising
and promotions
efforts.

Sales are
determined
solely by
advertising and
promotion.

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
Increase
Spending
Spending

If
If cost
cost is
is less
less than
than the
the
marginal
marginal revenue
revenue generated
generated

Hold
Hold
Spending
Spending

If
If the
the cost
cost is
is equal
equal to
to the
the
marginal
marginal revenue
revenue generated
generated

Decrease
Decrease
Spending
Spending

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

7-27

Sales Response Models

Advertising Expenditures

Initial Spending
Little Effect

Middle Level
High Effect

High Spending
Little Effect

B. S-Shaped Response
Function

Incremental Sales

Incremental Sales

A. Concave-Downward
Response Curve

Range A

Range B

Range C

Advertising Expenditures
7-28

Factors Influencing Advertising Budgets

Product
life cycle

Hidden product
qualities

Product
durability

Product
price

Differentiation

Purchase
frequency

7-29

Top-Down vs. Bottom-Up Budgeting

7-30

Top-Down Budgeting Methods

Affordable
Affordable
Method
Method

Return
Return on
on
Investment
Investment

Top
Top
Management
Management

Competitive
Competitive
Parity
Parity

Arbitrary
Arbitrary
Allocation
Allocation

Percentage
Percentage
of
of Sales
Sales

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
Isolate objectives
objectives
Determine
Determine tasks
tasks required
required
Estimate
Estimate required
required expenditures
expenditures
Monitor
Monitor
Reevaluate
Reevaluate objectives
objectives
7-33

Payout Planning

7-34

Quantitative Models

Computer Simulation
7-35

Allocating to IMC Elements

7-36

Other Budget Allocation Factors

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

7-37

High
Low

Competitors
Share of Voice

Share of Voice Effect

Decreasefind
Decreasefind aa
defensible
defensible niche
niche

Increase
Increase to
to defend
defend

Attack
Attack with
with large
large
SOV
SOV premium
premium

Maintain
Maintain modest
modest
spending
spending premium
premium

Low

High
Your Share of Market

7-38

Economies of Scale
Proposition I
Larger firms can support their brands with lower
relative advertising costs than smaller firms.
Proposition II
The leading brand in a product group enjoys lower
advertising costs per sales dollar than do other
brands.
Proposition III
There is a static relationship between advertising
costs per dollar of sales and the size of the
advertiser.
There is no evidence to support any of these!
7-39

Organizational Characteristics
Factors that influence advertising and
promotion budgets
The organizations 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
7-40