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ADVERTISING: Budgeting to Achieve Specific Objectives General Budget Strategies 1. Top Down 2. Sales Goals 3. Return on Investment 4. Bottom up (Goal Based) 1. Top-Down Budgeting Top Management Sets the Spending Limit The Promotion Budget Is Set to Stay Within the Spending Limit 2. Sales Objectives Budget Product Quality Promotion The Economy Competition SALES Price Policy Distribution 3. Return on Investment Budget MARGINAL ANALYSIS Increase Spending . . . IF: The increased cost is less than the incremental (marginal) return. Decrease Spending . . . IF: The increased cost is more than the incremental (marginal) return. Hold Spending Level. . . IF: The increased cost is equal to the incremental (marginal) return. Marginal Analysis: An Example Gross Margin Sales Ad. Expenditure $ Profit Point A Advertising / Promotion in $ The Complication: Two Advertising Response Functions A. Concave-Downward B. S-Shaped Response Response Curve High Spending Range B Little Effect Middle Level Range A High Effect Advertising Expenditures Initial Spending Sales Little Effect Sales Curve Range C Advertising Expenditures Concave or S-shaped? Concave or S-shaped? 4. Bottom-Up Budget Total Budget Is Approved by Top Management Cost of Activities are Budgeted Activities to Achieve Objectives Are Planned Promotional Objectives Are Set Goal Based Budgeting: The DAGMAR Approach Define Advertising Goals for Measuring Advertising Results Communications Effects Pyramid 5% Use 20% Trial 25% Preference 40% Liking 70% Knowledge 90% Awareness Alternative response strategies What would you budget for? Do Learn Feel Do Learn Feel Setting Objectives • Specific Communications Objectives • Concrete Measurable Tasks • Well-Defined Target Audience • Existing Benchmark Measure • Degree of Change Sought • Specific Time Period Video http://www.youtube.com/watch?v=XVNV5SpLjKk Activity • Evaluate the proposed campaign Suggested approach • 1. Determine involvement level • Which involvement hierarchy? • 2. Choose communication objectives (DAGMAR) • What should marketing communication DO? LATER STEPS: • 3. Select IMC channels • Which elements will allow you to achieve those? • 4. Estimate prices • How much will it cost to achieve those goals? Quote of the Day American advertisers rely on essentially illogical approaches to determine their advertising budgets. • Michael Schudson (professor)
