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Advertising & Sales Promotion Management Chapter 6 Advertising Objectives & Budgeting Learning Objectives • Recognize the importance of setting objectives for advertising and promotion. • Understand the role of objectives in the promotional planning process. • Know the difference between sales and communication objectives. • Understand the process of budgeting for IMC. • Understand theoretical issues involved in budget setting. • Know various methods of budgeting setting. 6.1 Introduction • Advertisements are done with business objectives in mind. • Marketing objectives are listed as – SMART obj. ‒ S = Specific ‒ M = Measurable ‒ A = Achievable ‒ R = Realistic ‒ T = Time-sensitive “Increase sales by 10% in six months through 20-week long product awareness campaign held in six target cities”. 6.1 Introduction • Advertising goals and tactics follow from marketing strategies and objectives. • However, there are two debatable school of thoughts regarding advertising objective; ‒ Is it marketing? ‒ Is it communication? ‒ Is it to generate sale or prepare customers to buy? • It is therefore tuff to set marketing objectives. 6.1 Introduction • Objectives provide performance standards. • Budget is derived from your objectives. • Also, it is not always possible to measure the effects of advertising in terms of sales. ‒ Advertisement for girl child education ‒ Advertisement for environment concerns ‒ Advertisement for rural education • Results of such advertisement with broader goals can't be measured. 6.2 Importance of Promotional Objectives • Important to have the promotional mix objectives for effective advertising. • Objectives are standards against which performance can be measured. • Advertisement may play different role but ultimately it’s a link between producer and consumer. • Advertising & Promotional objectives are needed considering the functions they serve in communications, planning & decision making, measurement and evaluation etc. 6.2 Importance of Promotional Objectives a) Objectives serve as a communications and coordination devise ‒ Objectives facilitates co-ordination of various groups working on campaign ‒ Organizational teams as well as support agencies should know what the company hopes to accomplish through its marketing communications program. ‒ Written and approved objectives guide action and discuss issues if any. 6.2 Importance of Promotional Objectives b) Objective provide a criterion for decision making ‒ All phases of promotional strategy are based on the established objectives ‒ Meaningful objectives can also be useful guide for decision making ‒ Promotional planner face challenges like; ‒ ‒ ‒ ‒ Creative ideas short-listing Selecting media Choosing the promotional mix Allocating the budget ‒ Promotional objective helps in short-listing 6.2 Importance of Promotional Objectives c) Evaluation of advertising effectiveness ‒ Objectives provide a benchmark against which the success of the campaign can be measured ‒ Without objectives either subjectivity comes or accountability suffers ‒ Good objectives are measurable ‒ Can justify return on investments 6.3 Classification of advertising objectives • Advertising objectives can be classified as per the various stages in the Product Life Cycle (PLC). i. Informative ‒ Informative advertising seeks initial demand ‒ Inform about new products, new offers, price ‒ Promotions across new market entry pursues this objective as success relies on announcing new product availability ‒ Informative advertising is common in the ‘Introduction’ stage of PLC 6.3 Classification of advertising objectives ii. Persuasive ‒ Objective is to persuade new customers for first time purchase to increase demand ‒ Persuade existing customers for repurchases ‒ Persuasive advertising increases the demand; o Encourage to switch brand o Create a preference in the market ‒ Competitive type of communication suited during the ‘Growth’ state or early part of the ‘Maturity’ or complete decline stage 6.3 Classification of advertising objectives iii. Reminder ‒ Objective is to maintain interest and awareness of a well established product in the market ‒ Often used at the point-of-purchase to remind consumers of the brand ‒ Reminder advertising reinforces previous promotional activity by keeping the name of a product before the public ‒ Reminder advertising is suitable during the later part of the ‘Maturity’ or complete decline stage 6.4 Types of Advertising Objectives • Promotional objectives evolve from the company’s marketing plan and are rooted in the firm’s marketing objectives. • Marketing objectives derived from the marketing plan are statements of what is to be accomplished by the overall marketing program. • Marketing objectives are in specific terms like sales, market share, profit or ROI. • Situational analysis helps in identification of the promotional problems and opportunities post which objectives are set. 6.4 Types of Advertising Objectives • The Achievement of marketing objectives depends upon the coordination of all the marketing mix elements, not just promotion. • Advertising objectives are various communication tasks required to deliver the message. • However, two schools of thoughts operate here; o Usually to communicate o Usually sales or market share • Clarity on which side of thought you wish to pursue must come. 6.4.1 Sales Objectives • Many believe that the only objective of advertising is sale. • Lack of sale can be due to any of the other marketing mix elements. • Promotional mix is only one of the elements. • Advertising can make consumers aware and interested. • Sale happens / doesn’t happen due to factors like competition, technology, packaging, price, quality, distribution, changing taste etc. 6.4.1 Sales Objectives • All the marketing elements must synchronized together to make brand successful. • Effect of advertising happens over a period of time post multiple exposures. • Sales objective approach can be used when advertising plays a dominant role and other factors are relatively stable. • Sales objective approach is appropriate where we look for immediate results such as sales promotions, DM, retail promotions, festival sale. 6.4.2 Communications Objectives • One school of thoughts believes that objective of a promotional program is to communicate. • Advtg & Sales Promotions are done to achieve goals like building awareness, brand image and purchase intentions. • For achieving such objectives, consumers must be given information and create favorable bias towards the brand even before purchase behavior to occur. • Logic? Consumers pass through successive stages of Response Hierarchy theory. 6.4.2 Communications Objectives • Before they move closer to purchase, purpose of advertising is to help move them through the different stages 6.4.2 Communications Objectives • A & P perform communications task by; o First generating awareness and knowledge o Moving the consumers towards trial and repurchase • Brand Low on awareness – Communication obj is to increase the awareness. • Brand low on liking / preference – Communications objective should be to change the image of the brand and move consumer through to purchase. 6.4 Types of Advertising Objectives Marketing Objectives • Make existing brand a leader in category to add additional products in future • To increase market share by expanding the market • To increase sales among existing users • To launch product in new markets Advertising Objectives • Make attitude favorable to a particular product • To build an image for the product • To reduce existing negative attitude • To ensure call to action 6.5 DAGMAR Approach to Objective Setting • DAGMAR = Defining Advertising Goals for Measured Advertising Result. • Pioneered by Russel H. Colley (1961). • It helps in establishing a measurable link between advertising goals and advertising results. • It monitors and evaluates promotion campaigns thus it is a planning and control tool. • 52 distinguished advertising goals were listed which can be used for single advertisement or year long campaign for a product. • Goals may pertain to sales, image, attitude etc. 6.5 DAGMAR Approach to Objective Setting • According to DAGMAR approach, the communication task of the brand is to gain; a) Awareness b) Comprehension c) Conviction d) Image e) Action • Advertising goals should be consistent with these communication tasks. 6.5 DAGMAR Approach to Objective Setting • Performance on these counts and projected goals is compared to evaluate the effectiveness of the campaign. • DAGMAR model has three parts; 1. Define advertising goals for effectiveness measurement 2. Understand four sequential path through which customers pass through – awareness, comprehension, conviction and action 3. Measure advertising result 6.5 DAGMAR Approach to Objective Setting 1. ‒ ‒ ‒ ‒ ‒ • • Define Advertising Goals: Characteristics of good advertising goals include; Written Measurable involving a starting point A defined audience Time limit You must know current state before the start of the advertising Through survey, you measure current awareness, comprehension and conviction. 6.5 DAGMAR Approach to Objective Setting 1. Define Advertising Goals: • You now set advertising goal which improves the identified attributes status – Increase product awareness from 10% to 30%. 2. Awareness, Comprehension, Conviction and Action ‒ Awareness: Make customers aware about your product, new product ‒ Not everyone will buy it. Thus vital to identify your target audience 6.5 DAGMAR Approach to Objective Setting 2. Awareness, Comprehension, Conviction and Action ‒ Comprehension: Make customers understand what product will do for them ‒ Make them aware about product feature, advantages and benefits ‒ Comprehension will generate its appropriateness in the minds of customers ‒ Conviction: Post comprehension, it is essential to build a positive attitude to the product ‒ Conviction needs persuasion 6.5 DAGMAR Approach to Objective Setting 2. Awareness, Comprehension, Conviction and Action ‒ Action: Inducing customers to take expected action which is a step towards buying ‒ Expected action at the customers end only generates revenue for you 3. Measure Advertising Effectiveness: ‒ Effectiveness can be measured post evaluating result vis-à-vis expectations 6.5 DAGMAR Approach to Objective Setting 3. Measure Advertising Effectiveness: ‒ Actual results are compared with goals set ‒ This may requires another survey if criteria are subjective – awareness, comprehension etc. • Utility of DAGMAR; ‒ Improvements in advertising and promotional planning process by providing a better understanding of the goals and objectives ‒ Planners’ efforts were directed towards that 6.5 DAGMAR Approach to Objective Setting 3. Measure Advertising Effectiveness: ‒ Focuses advertisers’ attention on the value of using communication based rather than salesbased objective to measure advtg effectiveness. ‒ Many promotional planner use this model as a basis for setting objectives and assessing the effectiveness of their promotional campaign ‒ It helps in less subjectivity and leads to better communication and relationships between client and agency 6.5.2 Criticism of DAGMAR • Too much reliance on the hierarchy of effects theory. • Customers do not necessarily pass through the stages in a linear way. • It inhibits creativity buy focusing on strategic aspects. • Creative focus will shift from developing unique & effective advertising to quantitative advtg. • It believes in communication approach and sidelines sales objective approach, which is basic. 6.5.2 Criticism of DAGMAR • It is practical only for big corporations with large marketing & advertising research budgets who can afford to establish quantitative benchmarks and measure communication. 6.6 Advertising Budget • One of the difficult marketing decision is to decide how much to spend on promotion mix. • John Wanamaker, a department-store magnet said in 2003, “I know that half of my advertising is wasted, but I don’t know which half!” • Advertising budget is the amount which has to be spent on advertising to promote product, reach target audience, generate sale and give reasonable profits to the company. • One must consider marketing conditions which will have impact on advertising budget. 6.6.1 Factors to be Taken into Consideration While Determining the Advertising Budget • • • • • • • • The advertising task to be achieved Frequency of the advertisement Competition and clutter Market share Product life cycle stage Product differentiation Support from retailers Financial resources 6.6.1 Factors to be Taken into Consideration While Determining the Advertising Budget • The advertising task to be achieved ‒ Is it awareness, trial, persuasion, sale, resale, festival sale ‒ Is it brand building, image building, equity development • Frequency of the advertisement ‒ Minimum exposure needed to pursue customers to get in to purchase action ‒ Regular, burst, seasonal, continuous frequency 6.6.1 Factors to be Taken into Consideration While Determining the Advertising Budget • ‒ ‒ • ‒ ‒ ‒ Competition and clutter Nature, level and intensity of competition faced Clutter (Noise) Market share To maintain, increase, develop market Product uniqueness / standardization PLC stage and market share 6.6.1 Factors to be Taken into Consideration While Determining the Advertising Budget • ‒ ‒ ‒ Product life cycle stage PLC stages are Intro, growth, maturity, decline Higher budget on intro and initial growth stage Budget tapers post momentum, or on maturity and decline • Product differentiation ‒ Poor differentiation needs higher budget ‒ Differentiation vis-à-vis equity if low, higher budget required 6.6.1 Factors to be Taken into Consideration While Determining the Advertising Budget • Support from retailers ‒ Retailers PUSH the brands ‒ Lesser the support, you need to create PULL, thus higher budget • Financial resources ‒ Funds availability, financial health allows more advertisement budget ‒ Impact on margin affects budget 6.6.2 Establishing and Allocating Promotional Budget • Objectives set w/o budget are unrealistic. • Budget is always limited • Budget has relevance to critical marketing objective i. Establishing the budget ‒ Advertising without the promotion is w/o the edge to your knife ‒ Promotion w/o advertising is like a broken knife 6.6.2 Establishing and Allocating Promotional Budget i. ‒ A. B. Budgeting Approaches Two basic approaches; Top-down approach Built-up approach A. Top-down approaches ‒ Budget is fixed and passed on to various departments ‒ Pre-determined w/o any theoretical basis 6.6.2 Establishing and Allocating Promotional Budget A. Top-down approaches a) The affordable method ‒ Firm needs to compulsorily spend on certain cost heads – production, operations etc. ‒ Margin prediction determines impact on profitability ‒ Organization accordingly decides how much spare money is available for allocating it to advertising & promotions etc. ‒ Tasks by advertising is not considered 6.6.2 Establishing and Allocating Promotional Budget A. Top-down approaches b) The arbitrary allocation ‒ Budget is determined based on what is considered as necessary ‒ There are no advertising objectives or purpose for advertising & promotions ‒ It is based on managements ad-hoc understanding about what can bring revenue ‒ It is illogically derived 6.6.2 Establishing and Allocating Promotional Budget A. c) ‒ ‒ Top-down approaches The percentage (%) of sales Most common and relevant method Use either past actual data of sale / advertising budget ‒ Project future sale and determine impact desired and accordingly determine % ‒ Both can be used where sales projection is derived differently and % are derived using past data 6.6.2 Establishing and Allocating Promotional Budget A. Top-down approaches d) The competitive parity ‒ Budgets are set by matching the % advertising to sales ratio of competition ‒ Two variants to this; i. Share of Expenses – Here past data of entire industry and each enterprise is compiled – sales & advertising expenses ii. To maintain past share of industry advertising expenditure, your budget is derived 6.6.2 Establishing and Allocating Promotional Budget A. d) ‒ i. Top-down approaches The competitive parity Two variants to this; Share of Voice – Here past data of entire industry and each enterprise is compiled – sales, market share & advertising expenses ii. To maintain past market share of industry advertising expenditure, your budget is derived. It can be tweaked to adjust to your planned market share 6.6.2 Establishing and Allocating Promotional Budget A. Top-down approaches e) The return on investment ‒ Here advertising approach is considered as an investment ‒ Also, it is accepted impact of advertising is spread over a period ‒ Sales is a result of advertisement seen over the period ‒ Thus return over pre-agreed period over investments made in advertising is calculated 6.6.2 Establishing and Allocating Promotional Budget i. ‒ A. B. Budgeting Approaches Two basic approaches; Top-down approach Built-up approach B. Built-up approaches ‒ In this objectives and goals are determined ‒ Cost is calculated to achieve these goals 6.6.2 Establishing and Allocating Promotional Budget B. Built-up approaches a) The objective & task method ‒ Process involves establishing the communication objectives ‒ Determining the strategy associated ‒ Determining the tasks needed to be done ‒ Determining the costs associated with such tasks ‒ Focuses on marketing need and results expected 6.6.2 Establishing and Allocating Promotional Budget B. Built-up approaches b) The payout planning ‒ Marketer projects the revenues that a product is expected to return over a period of two to three years ‒ Cost is associated to generate this revenue including advertising ‒ Armed with this data, marketers presents period in which project will pay-off ‒ If need to re-adjust, budgets are adjusted THANK YOU