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

Planning & Decision Making

Communications

Specific Objectives

7-3
 Characteristics of Objectives

Specific

Attainable Measurable

Realistic Quantifiable

7-4
Sales vs. Communications Objectives

Sales Communications
Objectives Objectives

• Primary goal is • Increased brand

increased sales knowledge, interest,
• Requires economic favorable attitudes
justification and image
• Should produce • Immediate response
quantifiable results not expected
• Goal is creating
favorable
predispositions
7-5
Problems with Sales Objectives

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

7-6
 Factors Influencing Sales

Technology
Competition

The
Advertising economy
& 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 Purchase
(behavioral)
Ads stimulate or Purchase intentions
direct desires

Affective (feeling) Favorable attitudes

Ads change attitudes and image
and feelings

Cognitive (thinking) Brand knowledge

Ads provide and interest
information and facts Brand awareness

7-11
Creating an Image

7-12
 Communications Effects Pyramid

5% Use

e
tiv
na
Co
e
20% Trial

25% Preference
iv
ct
fe
Af

40% Liking
e
ti v

70% Knowledge/comprehension
i
gn
Co

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 Awareness

Advertising
Goals for
Comprehension

Measuring Conviction
Advertising
Results Action

7-16
 Characteristics of Objectives

Concrete, Well-defined
measurable tasks audience

Benchmark Specified
measures time period

7-17
 Criticisms of DAGMAR

Problems with response hierarchy

Only relevant measure is sales

Costly and time consuming

Inhibits 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 we’re What we need

willing and to achieve our
able to spend objectives

7-21
 Establishing the Budget

How much To whom should

should we spend we allocate the
on advertising monies?
and promotion?

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 Sales are

direct measure determined
of advertising solely by
and promotions advertising and
promotion.
efforts.

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 If cost is less than the

Spending marginal revenue generated

Hold If the cost is equal to the

Spending marginal revenue generated

Decrease If the cost is more than the

Spending marginal revenue generated

7-27
 Sales Response Models

A. Concave-Downward B. S-Shaped Response

Response Curve Function
Incremental Sales

Incremental Sales

Initial Spending

High Spending
Middle Level

Little Effect
Little Effect

High Effect
Range A Range B Range C
Advertising Expenditures Advertising Expenditures

7-28
Factors Influencing Advertising Budgets

Product Hidden product

life cycle qualities

Product Product
durability price

Purchase
Differentiation frequency

7-29
Top-Down vs. Bottom-Up Budgeting

7-30
 Top-Down Budgeting Methods

Affordable
Method

Return on Arbitrary
Top
Investment Allocation
Management

Competitive Percentage
Parity of 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 objectives

Determine tasks required

Estimate required expenditures

Monitor

Reevaluate 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
 Share of Voice Effect
Share of Voice

Decrease–find a
High
Competitor’s

Increase to defend
defensible niche

Attack with large Maintain modest

Low

SOV premium spending 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 organization’s 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