Budget and comm.


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Budget and comm.

  1. 1. Communication and Advertising Budget
  2. 2. Framework of Advertising Planning & Decision Making Situation Analysis Marketing Programme Integrated Mar. Com. Plan Advertising Plan Implementation
  3. 3. Process starts with an analysis of the Brand’s external & internal environment Market analysis Situation Analysis Competitor analysis (external and internal) Brand Analysis- SWOTMarketing Programme Advertising Plan Implementation
  4. 4. The Role of Advertising emerges from the Marketing Programme Situation Analysis Determines the role of each elements of the marketing mix including Marketing Communications Indicates how all elements will be coordinated to support and synergiseMarketing Programme with each otherIMC & Advertising plan Implementation
  5. 5. The Advertising Plan Includes…Situation AnalysisMarketing Programme Setting Objectives - (Segmentation-positioning) Message – strategy & tactics IMC & Advertising Plan Media – strategy & tactics Implementation and Coordination (synergy with other IMC tools) Implementation
  6. 6. Framework of Advertising & Decision Making Situation Analysis Marketing Programme IMC /Advertising Plan Facilitating Agencies Implementation Social, legal & other constraints
  7. 7. The Role of Advertising….The role the Advertising plan can only be in the context of the Marketing Plan – The Advertising Plan must support and synergise with: • the elements of the Marketing Mix • and other elements of the Communication Mix Need to understand ‘How Advertising Works’ to appreciate the role it plays
  8. 8. How does Advertising work ? Advertising is ‘persuasive communication’
  9. 9. The Persuasion Process of Advertising Awareness /familiarity The Brand Benefit / InformationPersuasion Creating image /Process of personality Brand Purchase Attitude BehaviorAdvertising Associating feelingsis through with Brand a variety Linkage of Brand with of peers/experts/group norms /cultureadvertising Reminder / Brand trial effects inducement
  10. 10. Setting Advertising Objectives
  11. 11. These must be Operational ObjectivesMeaningful Advertising Objectives • Provide criteria for decision making • Serve as a communication and coordination tool • Provide criteria for evaluate performance Can ‘Sales’ be meaningful Objectives?
  12. 12. ‘Sales’- A Meaningful Advertising Objective??Difficult to identify the impact of Advtg.on ‘Sales’ – ‘Advtg. impact is felt over time – Isolating ad impact from other elements of the marketing mix is difficult New customers Advertising Immediate Sales Future sales Change attitude / improve image
  13. 13. Developing Advertising Objectives Involves 3 considerations -– Behavioral decisions (behavioral objectives) that Advertising must influence– The Target Segment– The decision making process that communication must precede to influence behavior
  14. 14. ‘Sales Strategy’ the basis for Advertising ObjectivesSales growth comes from - • New customers buying • Old customers staying loyal • Old customers consuming more
  15. 15. Demand Generation - Offensive Strategy Market dynamics: - Sales grow because of new customers buying Those not the Those buying buying product Other brands Existing customers ‘Offensive Marketing Strategies’ • Primary demand generation • Secondary demand generation
  16. 16. Demand Generation - Defensive Strategy Market dynamics: – Sale grow with old customers staying loyal ‘Defensive Marketing Strategy’ • Recall the important brand features • Reinforce use experience • Consumer promotions
  17. 17. Demand Generation through Increased ConsumptionMarket dynamics:Sales grow with ‘Product form expansion’ • More frequent usage / share of requirement (SOR) • New use applications
  18. 18. Primary Demand - Customers trying Trial the category for the Purchase first time Secondary Demand- New customers using Trial other brands Purchase Behavioral Responses that drive Existing customers Purchase Loyalty LoyaltyMore consumption news Increaseduses and more usage usage / SOR Marketing / Sales Strategies & Behavioral Objectives
  19. 19. The Influence of Advertising on Desired BehaviorAdvertising is not as effective in directly evoking desired action -‘Purchase’Advertising causal intervening response desired behavioral response SalesSales Promotions, DM & Retail Advertising should be used in conjunction with Advertising to drive sales
  20. 20. Advertising Objectives (the InterveningResponse Variables that are persuasivein its context) are determined by thetype of Sales Strategy and BehavioralObjectives
  21. 21. Advertising Objectives Reflect the Target SegmentThe segment and sub-segment can be defined by – • Behavioral measures – non-users, other brand users, heavy / light / loyal users etc. • Advertising response measures – unaware, not convinced of key benefit, diffused / sharp image, etc • Lifestyle - attitude & opinions, interests • Benefits sought • Demographic, psychographics, geographic basis - more relevant for media decisions
  22. 22. Communication Objective
  23. 23. Communication effect Pyramid 5% Repurchase /regular use 10% trail 20% Preference 40% Liking 60% knowledge/Comprehension 80% Awareness
  24. 24. Behavioral Objectives for five target groups New Favorable Other brand Other brandTrail Objectives category brand Brand loyal loyal switchers users switchers Category trail Yes Brand trail Yes Yes Yes Brand re trail Yes Yes Repeat purchase objectivesMaintain repeat Yespurchase rateIncrease repeat Yes Yes Yes purchase rate Buy more per Yes Yes occasion Accelerate timing Decrease the
  25. 25. DAGMAR Approach• Russell H. Colley (1961) prepared a report for the Association of National Advertisers titled Defining Advertising goals for measured advertising Results (DAGMAR). He developed this model for setting advertising objectives and measuring the results of an ad campaign
  26. 26. • According to colley advertising means – Advertising job, purely and simply, is to communicate to a defined audience information and a frame of mind that stimulates action. Advertising succeeds or fails depending on how well it communicates the desired information and attitudes to the right people at the right time and at the right cost.
  27. 27. ‘Hierarchy of Effects’ Model - DAGMAR Unaware Aware Cognitive Comprehension & image Attitude Affective Action Behavioral DAGMAR Approach – A communication task to be accomplished amongst a definedaudience, in a specified period of time. Advertising objective involve a comm. Task that is specified and measurable
  28. 28. • Awareness: involves making target audience aware of the existence of brand or company.• Comprehension: the purpose is to develop an understanding among audience of what the product is and what it would do for them• Conviction: the objective is to create a mental disposition among target audience members to buy the product• Action: to motivate the target audience to purchase the product or service.
  29. 29. DAGMAR in PracticeObjectives to ensure the sated goals contain the crucial aspects of DAGMAR– A specific task indicated clearly – to be measurable– A starting point set –Benchmark against which goal achievement can be measured– A Target Segment specified precisely– The Time Period for achieving the desired response indicated
  30. 30. DAGMAR in PracticeChallenges to DAGMAR • Does not measure Sales • Broad outline does not give enough details (which hierarchical level) • Measurement is a problem • System noise – other factors affecting goal • Model may not hold good in every situation
  31. 31. Advertising affects on consumer Behavioral dimensions Steps towards purchase Advertising for various stagesConative Purchase POP advertising, testimonials,The realm of motives ads price/quality appealsstimulates or directs desires ConvictionAffective Preference Comparative adsThe realm of emotions, Argumentative copyattitudes and feelings Image, status, glamour Liking appealsCognitive Knowledge Descriptive copy, slogans,The realm of thoughts jingles etc. awareness Ad. Repetition, teaser ads.
  32. 32. Other Persuasion Models AIDA Hierarchy Innovation of Effects AdoptionCognitive Awareness Attention AwarenessStage Knowledge Liking Interest InterestAffective PreferenceStage Desire Evaluation Conviction TrialAction Action Purchase AdoptionStage
  33. 33. Advertising Budget• The term advertising budget in essence is nothing but planning the advertising expenditure.• Advertising money before spending, it is necessary to ensure its proper investment.• Every ad is a long term investment in the personality of a brand. Therefore, when advertising is recognized as a type of future investment, care must be taken today to make it more effective with proper planning of advertising budget.
  34. 34. IMPORTANCE OF ADVERTISING BUDGET• Check on advertising expenditure• Approval from top management• Balanced focus• Facilitates planned execution• Provides direction for drafting of Ads• Selection of media
  35. 35. Establishing the budget• The size of the firm’s advertising and promotions budget can vary from a few thousand dollar to more than a billion. When companies like Procter & Gamble and General Motors spend over a billion dollar per year to promote their products.• Unfortunately, many managers fail to realize the value of advertising and promotion. They treat the communications budget as an expense rather than an investment. When times get tough, the advertising and promotional budget is the first to be cut.• Moreover, the decision is not a one-time responsibility. A new budget is formulated every year, each time a new product is introduced or when either internal or external factors necessitate a change to maintain competitiveness.
  36. 36. Models used to establish advertising budgets Marginal Analysis• The concept of marginal analysis explained that as advertising/ promotional expenditures increase, sales and gross margins also increases 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 money as long as the marginal revenue created by these expenditure exceeded the incremental advertising/promotional cost.• While marginal analysis seems logical intuitively, certain weaknesses limit its usefulness. These weaknesses include the assumptions :-• Sales are a direct measures of advertising and promotions efforts.• Sales are determined solely by advertising and promotion.
  37. 37. SALES RESPONSE MODELS• Almost all advertiser subscribe to one of two models of the advertising /sales response function:• the concave-downward function or• the S-shaped response curve.
  38. 38. The concave-downward function• In this advertising budget follow the law of diminishing returns. That is as the amount of advertisement increases, its incremental value decreases. This means that those with the great potential to buy will buy in the first exposure, while those who are less likely to buy are not likely to change as a result of advertising even each additional adv. will supply little or no new information that will affect their decision
  39. 39. The S-shaped response function• S-shaped response function to the budget outlay. Initial outlays of the advertising budget have little impact( as indicated by the essentially flat sales curve in range A). After a certain budget level has been reached ( the beginning of range B), advertising and promotional efforts begin to have an effect, as additional increment of expenditures result in increased sales. This incremental gain continues only to the point, however, because at the beginning of the range C additional expenditure begin to return little or nothing in the way of sales. This model suggest a small advertising budget is likely to have no impact beyond the sales that may have been generated through other means( for example, word of mouth).
  40. 40. ADVERTISING BUDGET PROCESS• Since advertising is an investment, it should be budgeted like any other investment. The preparation of an advertising budget generally determines the size of advertising expenditure. How much should be spent on advertising? To determine this is the purpose of the advertising budget.• A “budget” is a forward plan of any activity expressed in terms of rupees, and budgeting is the process of this planning. Therefore, the advertising budget is the amount of the proposed advertising expenditure and its apportionment on the various advertising activities of the company. The advertising budget thus serves as a decision- making tool for the top management, in addition to its control function of such expenses.
  41. 41. • The advertising budget is prepared by the advertising manager of the company. However, ad agencies do help him in this planning work. Logically, the starting point of any advertising budget process is the determination of the size of advertising appropriation. Once the total expenditure is arrived at, the next step is the apportionment of this fund among various advertising units over a period.• During the execution of the budget, the advertising manager has to exercise monitoring control so that the funds that have been allocated may be spent in most economical manner.
  42. 42. Budgeting Approaches• After having a clear understanding of what an advertising budget is, let us discuss the various methods of framing the advertising budget. There are no scientific methods which can be employed in determining the amount of the advertising fund to be spent during the year. However, here are a few approaches, which may serve as guides to advertising appropriation decision.
  43. 43. There are two types of approaches• Top down approaches• Bottom up approaches• TOP DOWN APPROACHES- Budgeting approaches in which the budgetary amount is established at the executive level and monies are passed down to the various department. These budgets are essentially predetermine and have no true theoretical basis top down basis .• These budgets are essential y predetermined and have no true theoretical basis. Top-down methods include the affordable method, arbitrary allocation, percentage of sales, competitive parity, and return on investment.
  44. 44. • Bottom up approach- A method of determining the budget for advertising and promotion by determining the specific task that have to be performed and estimating the cost of performing them. A more effective budgeting strategy would be to consider the firms communications objectives and budget what is deemed necessary to attain these goal.
  45. 45. METHODS OF TOP DOWN APPROACH• Percentage-of-sales method• All you can afford• Arbitrary method• Competitive parity method• Return of investment
  46. 46. Percentage-of-sales method• In the percentage-of-sales method, advertisers use one of the two things in arriving at how much to be spent on advertising. The first one is to select a factor or multiplier, such as 3, 5 or 7 per cent, then multiply this by the sales figures in rupees, and the sum so arrived at is the answer to the question of how much to spend. For example, if the sales are worth Rs. 300 lakhs, taking 3 per cent of this, the advertiser should spend about Rs. 9 lakhs on advertising. By this method, the advertisers determine how much of their sales rupees should be spent on advertising. The sales figure in the above calculation may be based on past sales or expected future sales for the time period for which the advertising appropriation is determined. Either gross or net sales figures can be used.
  47. 47. • The other method of determining the advertising funds to be spent, depends upon the number of machines sold or units of product sold. For example, an automobile firm selling 500 cars a year will decide to spend Rs. 200 for each car sold as advertising expenses. Thus, a total of Rs. One lakh will be the advertising budget. The number of cars sold may be determined on the basis of immediate past sales or the expected future sales.
  48. 48. • The best way is to start with the most appropriate percentage figure bases on an individuals estimate, the industrys average and the competitors figure, and then improve it in the light of experience gained over a period of time. The percentage figure varies widely from as low as one per cent in mining companies to as high as 40 per cent in the pharmaceutical and cosmetic companies.
  49. 49. • Advantage of Percentage of sales-• It is financially safe• keeps ad spending within reasonable limits• This method is simple, straightforward• Easy to implement• Disadvantage of Percentage of sales-• Percentage of sales method is also difficult to employ for new product introduction.• If the budget is contingent on sales, decreases in sales will leave to decrease in budget when they most need to be increased. Continuing to cut the advertising and promotion budget may just add impetus to the downward sales trend.
  50. 50. All You Can Afford• The what-can-be-afforded method is yet another decision rule on which many firms base their advertising budgets, particularly firms with limited resources. When fund availability is a constraint, a limited fund is only allocated after other unavoidable expenditures have been met. The rule is also based on the premise that sales are independent of advertising expenditure _ an assumption which is not well founded. The method, moreover, suffers from an inherent shortcoming _ that budget decisions are left to the whim of the management and are not based on rational business needs. Whims are mostly irrational and subjective rather than based on an objective approach.
  51. 51. ARBITRARY METHOD• A variation of the what-can-be-afforded method is yet another subjective method, by which the budget is arbitrarily set without any rationality and analysis of the task of advertising. This is referred to as the arbitrary method Some advertisers decide that they will spend X rupees on advertising next year. They claim that, because of their first hand knowledge of business, they have acquired a sort of "gut feeling" about how much advertising expenses would be appropriate. This is a "human" method.
  52. 52. COMPETITIVE PARITY METHOD• A method of setting the advertising and promotion budget based on matching the absolute level of percentage of sales expenditure of the competition.• The competitive parity method has a number of disadvantages,• It ignores the fact that advertising and promotional are designed to accomplish specific objectives by addressing certain problems and opportunities.• It assumes that because firms have similar expenditures, their programs will be equally effective.• There is no guarantee that competitors will continue to pursue their existing strategies.• Finally, competitive parity may not avoid promotional wars Coke versus Pepsi and Anheuser-Busch versus Miller have been notorious for their spending wars, each responding to the others increased outlays.
  53. 53. RETURN OF INVESTMENT• A budgeting method in which advertising and promotion are considered investments and thus measurement are made in an attempt to determine the returns achieved by these investment.ROI budgeting method, advertising and promotions are considered investments, like plant and equipment.• While the ROI method looks good on paper, the reality is that it is rarely possible to assess the returns provided by the promotional effort-at least as long as sales continue to be basis for evaluation. ROI remains a virtually unused method of budgeting.
  54. 54. METHODS OF BOTTOM UP APPROACH• OBJECTIVE TASK METHOD-• The objective-and-task approach to advertising budget is based on establishing advertising objectives and the tasks to be accomplished, and then determining the required size of the budget. For example, a company decides to increase the awareness of its brand in a certain market segment to 50 per cent. The required tasks to achieve this awareness are detailed, and a suitable campaign programme is chalked out. The cost of doing so, or, in other words, the cost of achieving the requisite exposure, will be the advertising budget.
  55. 55. • The “objectives" are the advertisers long-term marketing aims, whereas "task" is a short-term undertaking, usually the next years sales goals.• The definition of the term task and the determining of the advertising programme should be further elaborated, for they form the most critical steps in the method. No doubt, the primary purpose of advertising is to improve the sales of the company; but besides this, advertising is required to perform some non- selling tasks. Immediate sales may not always be the goals.
  56. 56. Few typical examples of the tasks to be performed by advertising campaigns:1. To increase an awareness of a product and its promotion;2. To develop the long-term selling theme - quality product, newness, customer service;3. To acquaint the market with the brand name;4. To overcome expected consumer objection to the use of the product;5. To introduce a new product;6. To secure the required distribution through wholesalers and retailers.
  57. 57. • The major advantage of the objective and task method is that the budget is driven by the objectives to be attained. The managers closest to the marketing effort will have specific strategies and input into the budget-setting process.• The major disadvantage of this method is the difficulty of determining which till be required and the costs associated with each. For example, specifically what tasks are needed to attain awareness among percent of the target market?
  58. 58. Pay out planning• It is use full when new products are introduced.• It is used in conjunction with other budgeting methods to estimate the investment value of advertising.• The commitment is to invest heavily in advertising to achieve increased awareness and product acceptance.• The basic idea is to develop a projection of revenues the product will generate, and the costs it will incur over a period of two or three years.
  59. 59. Quantitative models• Regression models etc.
  60. 60. Experimental approach• It is an alternative to using statistical approaches and mathematical models.• Test and experiments are done in one or more selected market areas.• The purpose is to determine the impact of input variations that might be used.• The feedback data of this experiment is used to determine the ad. Budget.