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Chapter 7 PowerPoint

  1. 1. Promotional Strategy MKT4230 Establishing Objectives and Budgeting for the Promotional Program Patricia Knowles, Ph.D. Associate Professor Clemson University 1
  2. 2. 2 Promotional Strategy MKT4230 2 Setting Objectives There are obstacles that get in the way of setting IMC program objectives: • Complex marketing situations • Conflicting perspectives • Uncertainty over resources Textbook Pages 216
  3. 3. 3 Promotional Strategy MKT4230 3 Value of Objectives Specific objectives are the foundation upon which other important decisions rest. Setting specific IMC program objectives is so important to do: • Communications: Setting objectives facilitates coordination of the various groups working on the campaign. Many problems can be avoided if all parties have written, approved objectives to guide their actions and serve as a common base for discussing issues related to the promotional program. • Planning and Decision Making: Specific promotional objectives guide development of an integrated marketing communications plan, as well as decisions related to creative options, media selection, and budget allocation. • Measurement and Evaluation: Objectives provide a benchmark against which the success or failure of the promotional campaign can be measured. Most organizations are concerned about the return on their promotional investment; comparing actual performance against measurable objectives is the best way to determine if the return justifies the expense. Textbook Pages 217 - 218
  4. 4. 4 Promotional Strategy MKT4230 4 Characteristics of Objectives These are characteristics of good communication and promotional objectives: • Specific: A clear definition of what is to be achieved by the program. • Measurable: Outcomes such as sales volume, market share, profits, or return on investment. • Quantifiable: Delineates the target market and notes the time frame for accomplishing the goal (often one year). • Realistic and Attainable… as in “increase sales by 10% during the next 12 months.” Textbook Pages 218 - 219
  5. 5. 5 Promotional Strategy MKT4230 5 Sales vs. Communications Objectives This chart presents the differences between marketing and communications objectives: Textbook Pages 219 - 223 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
  6. 6. 6 Promotional Strategy MKT4230 6 Problems with Sales Objectives These are some of the problems related to sales objectives: Textbook Pages 220 - 221 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. 7 Promotional Strategy MKT4230 7 Factors Influencing Sales These are the various factors that can affect sales: Textbook Pages 220 - 221 / Figure 7 - 1 Competition Technology Economy Product Quality Price Distribution Advertising & Promotion
  8. 8. 8 Promotional Strategy MKT4230 8 Where Sales Objectives are Appropriate This visual presents a packaging design that resulted in a 15.7 percent increase in sales. Some promotion efforts are designed to induce an immediate behavioral response. Textbook Pages 221 - 222 / Exhibit 7 - 3 To celebrate its 100th anniversary, Kayem Foods changed the design of their frankfurter package. Within 12 weeks of the introduction of the new copy and label, regional sales rose by 15.7 percent, which prompted a national rollout.
  9. 9. 9 Promotional Strategy MKT4230 9 Where Sales Objectives are Appropriate This visual shows a direct-response ad that Mercury Insurance Group uses to sell products and services. Direct-response advertising often evaluates its effectiveness on the basis of sales. Merchandise or services are advertised to customers, who then make purchases by mail, on the Internet, or by calling a toll-free number. Textbook Pages 221 - 222 / Exhibit 7 - 5 Sales objectives may also be appropriate for TV ads if the ad is the only form of communication and promotion being used, and the response is immediate. Discount coupons are used to increase sales during a particular time period, so sales objectives are appropriate here as well.
  10. 10. 10 Promotional Strategy MKT4230 10 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.
  11. 11. 11 Promotional Strategy MKT4230 11 Communications Objectives This visual shows a hierarchy of effects model and the steps consumers move through before making a purchase: Textbook Page 223 Purchase Purchase intentions Favorable attitudes and image Brand knowledge and interest Brand awareness Conative (behavioral) Ads stimulate or direct desires Affective (feeling) Ads change attitudes and feelings Cognitive (thinking) Ads provide information and facts
  12. 12. 12 Promotional Strategy MKT4230 12 Creating an Image This is an ad that Consolidated Edison uses to create an image of its company. Textbook Pages 223 / Exhibit 7 - 6 Some advertisements do not require immediate action on the part of the consumer, but encourage consumers to consider the brand when they enter the market for products in this category. In this case, Consolidated Edison creates favorable images of the company by linking pictures of children to Con Ed workers in action.
  13. 13. 13 Promotional Strategy MKT4230 13 Communications Effects Pyramid These are the effects of communications on consumer behavior: Textbook Pages 223 - 224 / Figure 7 - 2 20% Trial 5% Use 90% Awareness 70% Knowledge/Comprehension 40% Liking 25% Preference
  14. 14. 14 Promotional Strategy MKT4230 14 GfK Purchase Funnel GfK Purchase Funnel is used by many in the automobile industry as a diagnostic model of consumer decision making. Textbook Pages 224 - 227 / Figure 7 - 3 In essence, it is an inverse of the communications effects pyramid, and shows that 90% awareness funnels down to 5% purchase/use.
  15. 15. There are two major problems with translating sales goals into communications objectives: • Determining what an adequate level is for customer awareness, knowledge, liking, preference, and conviction. • Having no formulas or guidelines that provide this information. A promotional manager must base decisions on personal experience, as well as the marketing history of this and similar brands. 15 Promotional Strategy MKT4230 15 Problems with Communications Objectives Textbook Pages 224 - 227
  16. 16. 16 Promotional Strategy MKT4230 16 The DAGMAR Approach This is the DAGMAR model and the four stages of the communication process: Textbook Pages 226 - 227 Define Advertising Goals for Measuring Advertising Results Action Awareness Conviction Comprehension
  17. 17. 17 Promotional Strategy MKT4230 17 Characteristics of Objectives The basic characteristics of a good objective: Textbook Pages 227 - 228 Concrete and Measurable Tasks Benchmark Measures Well-Defined Audience Specified Time Period
  18. 18. 18 Promotional Strategy MKT4230 18 Criticisms of DAGMAR This visual summarizes the criticisms of the DAGMAR approach: Textbook Pages 228 - 229 Costly and Time Consuming Problems with Response Hierarchy Only Relevant Measure is Sales Inhibits Creativity
  19. 19. 19 Promotional Strategy MKT4230 19 Advertising-Based View of Marketing This chart shows a traditional advertising-based view of marketing communications: Textbook Pages 229 - 230/ Figure 7 - 4 Acting on Consumers Ads
  20. 20. 20 Promotional Strategy MKT4230 20 Utilizing a Variety of Media This visual shows how the San Diego Zoo attempts to attract visitors through a variety of media: Textbook Pages 230 - 231 / Exhibit 7 - 10 • Provide funding for the society’s programs • Maintain a large and powerful base of supporters for financial and political strength • Educate the public about the society’s programs • Maintain a favorable image on a local, regional, national, and international level • Draw visitors To achieve these objectives, the society’s IMC program employs a variety of integrated marketing communication tools, including the website shown on this slide. Note: This is a good time to show some of the San Diego Zoo and Wild Animal Park videos on the accompanying CD.
  21. 21. 21 Promotional Strategy MKT4230 21 Balancing Objectives and Budgets This visual shows the delicate balancing act between how much money a company is willing to spend on advertising, and how much money should be spent to achieve advertising goals. While establishing marketing objectives is an important part of the planning process, the limitations of the budget are important too. No organization has an unlimited budget, so objectives must be set with the budget in mind. Textbook Page 231 What we’re willing and able to spend What we need to achieve our objectives
  22. 22. 22 Promotional Strategy MKT4230 22 Establishing the Budget These are the two promotional budgeting decisions that every organization must make: Textbook Page 231 To whom should we allocate the monies? How much should we spend on advertising and promotion?
  23. 23. 23 Promotional Strategy MKT4230 23 Budget Decisions in a Down Economy During a recession, advertising and promotional budgets are the first to be cut. The best defense is a good offense. This is the opposite of what often occurs, because many managers fail to realize the value of advertising and promotion. They see it merely as an expense, rather than an investment. Textbook Page 233 / Exhibit 7 - 11
  24. 24. 24 Promotional Strategy MKT4230 24 Marginal Analysis This visual shows a graphical representation of the concept of marginal analysis. As advertising/promotional expenditures increase, sales and gross margins also increase, but then level off. Profits are a result of the gross margin minus advertising expenditures. Textbook Pages 235 - 236 / Figure 7 - 7 Using this theory to establish a budget, a firm would continue to spend advertising dollars as long as the revenues created by the expenditures exceeded the advertising costs. As shown on the graph, the optimal expenditure level is the point at which costs equal the revenues they generate (point A).
  25. 25. 25 Promotional Strategy MKT4230 25 Weakness of Marginal Analysis The two basic assumptions about marginal analysis that limit its usefulness: Textbook Pages 235 - 236 Sales are determined solely by advertising and promotion. Sales are a direct measure of advertising and promotions efforts.
  26. 26. 26 Promotional Strategy MKT4230 26 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
  27. 27. 27 Promotional Strategy MKT4230 27 Budget Adjustments This chart presents situations in which advertising budgets should be maintained as-is, increased, or decreased. Textbook Pages 235 - 236 / Figure 7 - 7 Increase Spending If cost is less than the marginal revenue generated Hold Spending If the cost is equal to the marginal revenue generated Decrease Spending If the cost is more than the marginal revenue generated
  28. 28. 28 Promotional Strategy MKT4230 28 Sales Response Models The two models of the advertising/sales response function. Textbook Pages 236 - 237 / Figure 7 - 8 IncrementalSales Advertising Expenditures A. Concave-Downward Response Curve IncrementalSales Advertising Expenditures Range A Range B Range C B. S-Shaped Response Function HighSpending LittleEffect InitialSpending LittleEffect MiddleLevel HighEffect
  29. 29. 29 Promotional Strategy MKT4230 29 Factors Influencing Advertising Budgets These are some of the additional factors that should be considered when establishing an advertising budget. Textbook Pages 237 - 238 / Figure 7 - 9 Purchase frequency Product life cycle Product durability Differentiation Product price Hidden product qualities
  30. 30. 30 Promotional Strategy MKT4230 30 Top-Down vs. Bottom-Up Budgeting This chart outlines the top-down and bottom-up approaches to budgeting. Promotion objectives are set Bottom-Up Budgeting Activities needed to achieve objectives are planned Costs of promotion activities are budgeted Total promotion budget is approved by top management Top management sets the spending limit Top-Down Budgeting Promotion budget set to stay within spending limit Textbook Pages 238 - 239 / Figure 7 - 11
  31. 31. 31 Promotional Strategy MKT4230 31 Top-Down Budgeting Methods These are examples of various top-down budgeting methods. Textbook Pages 238 - 245 Affordable Method Competitive Parity Percentage of Sales Return on Investment Arbitrary Allocation Top Management
  32. 32. 32 Promotional Strategy MKT4230 32 Build-Up Approaches Objective and Task Method is one build-up approach to budgeting and consists of three steps: • 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 The total budget is based on the accumulation of these costs. Textbook Page 246
  33. 33. 33 Promotional Strategy MKT4230 33 Implementing the Objective and Task Approach These are the steps of objective and task budgeting, which reflects a bottom-up approach. Textbook Pages 246 - 247 Isolate objectives Determine tasks required Estimate required expenditures Monitor Reevaluate objectives
  34. 34. 34 Promotional Strategy MKT4230 34 Payout Planning This chart illustrates that the first months of a new product’s introduction typically require heavier-than-normal advertising and promotion to stimulate product awareness and subsequent trial. To determine how much to spend, marketers often develop a payout plan that projects revenues the product will generate, as well as the costs it will incur, over two to three years. Textbook Pages 247 - 248 / Figure 7 - 19 A three-year payout plan is shown on this slide. The product will lose money in year 1, almost break even in year 2, and show a profit by the end of year 3. Note that the cost of advertising and promotion is highest in year 1, and declines in years 2 and 3.
  35. 35. 35 Promotional Strategy MKT4230 35 Quantitative Models Quantitative budgeting models are available, but have met with limited success. Generally, 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. Textbook Page 249 Because of problems associated with these methods, their acceptance has been limited. As these methods are improved and refined, they may achieve more widespread success. Computer Simulation
  36. 36. 36 Promotional Strategy MKT4230 36 Allocating to IMC Elements This is how advertising expenditures were allocated in between 2008 and 2009. Advertisers distributed their funds among the various advertising venues and those allocations shifted over time. Textbook Pages 250 - 253 / Figure 7 - 23 Note that many advertisers are shifting from traditional advertising media to sales promotions targeted to both consumers and the trade. As this figure shows, radio and magazines took the hardest hits. The only media showing increases during this time frame were for the Internet (display advertising) and free-standing inserts (FSIs).
  37. 37. 37 Promotional Strategy MKT4230 37 Other Budget Allocation Factors These are other factors that may influence a company’s budget allocation decisions: • Client/Agency Policies: There may be disagreement over whether monies should go to sales promotions or advertising, creative talent or specific media. Decisions will also be impacted by past successes. • Market Size: Smaller markets are often easier and less expensive to reach. • Market Potential: A market with low sales but high potential may be a candidate for additional appropriations. • Market Share Goals: Does the company want to maintain or increase market share? As a rule, new brands receive higher-than-average advertising support. Older, mature brands have reduced advertising support. Well-established brands require a lower expenditure. Textbook Page 251 - 252
  38. 38. 38 Promotional Strategy MKT4230 38 Other Budget Allocation Factors This chart outlines strategies for advertising spending based on company or brand market share and a competitor’s share-of-voice (SOV). Textbook Pages 252 / Figure 7 - 22 Decrease–find a defensible niche Increase to defend Attack with large SOV premium Maintain modest spending premium Competitor’s ShareofVoice HighLow HighLow Your Share of Market
  39. 39. 39 Promotional Strategy MKT4230 39 Economies of Scale These are three propositions related to the economies of scale in advertising: Textbook Page 252 There is no evidence to support any of these! 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.
  40. 40. 40 Promotional Strategy MKT4230 40 Organizational Characteristics The following factors influence budget allocation decisions, although they may vary from one organization to another, and each influences the amount assigned to advertising and promotion. • Organization’s Structure: Centralized versus decentralized, formalization, and complexity. • Power and Politics: Including the level of interaction between functional departments. • Use of Expert Opinions: For example, advise from consultants, or trade and academic journals. • Characteristics of Decision Maker: Preferences and experience. • Approval and Negotiation Channels: How many approval levels, approval limitations, and so forth. • Pressure on senior managers to arrive at the optimal budget… more important than ever in an economic downturn. Textbook Pages 252 - 253