Establishing Objectives and Budgeting for the Promotional Program

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Establishing Objectives and Budgeting for the
Promotional Program
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Value of Objectives

• Focus and Coordination
• They help to orient everyone involved toward one,
  common goal.
• Plans and Decisions
• They serve as criteria for developing plans and
  making decisions.
• Measurement and Control
• They provide the standards and benchmarks for
  evaluating results.

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Objectives

• Sales Objectives
• Communications Objectives

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Not all Ads are Designed to Achieve Sales
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Not all Ads are Designed to Achieve Sales
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Sales Objectives

• Specific, measurable outcomes within a given time
  period.
• Ex. sales volume, market share, profits, or ROI.
• A good sales objective is quantifiable, realistic
  and attainable. In addition, it also delineates
  the target market and time frame.

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Problems with Sales Objectives

• Too many factors influence sales.
• Carryover effect for mature, frequently
  purchases, low-priced products, advertising
  effect on sales lasts up to 9 months.
• Offer little guidance to the managers.
• Induce the managers to take a short-term
  perspective.

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Many Factors Influence Sales
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Appropriate Situations for S.O.

• Induce an immediate behavioral response
• Direct-response advertising
• Retail advertising, ex. ????, ???.
• Advertising plays a dominant role in a firms
  marketing program and other factors are
  relatively stable. Ex. packaged goods.

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Sales Objectives are Appropriate for Direct
Response Advertising
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Communications Objectives

• Designed to achieve such communications as brand
  knowledge and interests, favorable attitudes and
  images, and purchase intentions.

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Advertising and Movement Toward Action
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Inverted Pyramid of Communications Effects
90 Awareness 70 Knowledge 40 Liking 25
Preference 20 Trial 5 Use
Cognitive
Affective
Conative
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Setting Objectives Using the Communications
Effects Pyramid

• Product Backstage Shampoo
• Time period Six months
• Objective 1 90 awareness
• Objective 2 70 interest
• Objective 3 40 positive feelings and 25
  preference
• Objective 4 20 trial
• Objective 5 5 main regular use

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The DAGMAR Approach

• Define
• Advertising
• Goals for
• Measuring
• Advertising
• Results

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Communication Tasks

• Four stages
• Awareness
• Comprehension
• Conviction
• Action

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Characteristics of Objectives
Good Objectives Should Include

• Concrete, Measurable Communication Tasks
• Well-Defined Target Audience
• Have an Existing Benchmark Measure
• Specify Degree of Change Sought
• Specific Time Period

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DAGMAR Difficulties
Legitimate Problems
Questionable Objections

• Sales Objectives Are Needed
• Sales are all that really counts, not
  communications objectives.
• Costly and Impractical
• The research and efforts cost more then the
  results are worth.
• Inhibition of Creativity
• Too many rules and structure curb genius.

• Response Hierarchy Problems
• Doesn't always define the process people use to
  reach purchase/use.
• Attitude - Behavior Relationship
• Attitude change doesn't always lead to change in
  actions or behavior.

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The Promotional Budget

• Establishing the budget
• Allocating the budget (budgeting approaches)

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Establishing the budget

• Marginal Analysis
• Sales response models
• Additional factors in budget setting

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Marginal Analysis
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BASIC Principles of 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.

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Problems with Marginal Analysis

• Assumption that sales are a direct measure of
  advertising and promotional efforts.
• Assumption that sales are determined solely by
  advertising and promotion.

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Advertising Sales/Response Functions
A. Concave-Downward Response Curve
B. S-Shaped Response Function
Sales
Sales
Middle Level High Effect
High Spending Little Effect
Initial Spending Little Effect
Range A
Range B
Range C
Advertising Expenditures
Advertising Expenditures
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Additional Factors in Budget Setting

• Figure 7-11
• Figure 7-12

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Allocating the Budget

• Top-down budgeting
• Bottom-up budgeting

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Top-Down Budgeting
Top Management Sets the Spending Limit
The Promotion Budget Is Set to Stay Within the
Spending Limit
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Top-Down Budgeting

• Arbitrary allocation
• The affordable method
• Percentage of Sales
• Competitive parity
• Return on investment (ROI)

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The Affordable Method

• It is common among small firms and certain
  non-marketing-driven large firms.
• Logic We cant be hurt with this method.
• Weakness often does not allocate enough money.

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Percentage of Sales

• Sales dollar or unit product cost
• Future or past
• Pros
• Financially safe
• Reasonable limits
• Stable

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Percentage of Sales

• Cons
• Reverse the cause-and-effect relationship between
  advertising and sales.
• Stability
• Misallocation
• Difficult to employ for new product
  introductions.
• Sales? ? Advertising budget?

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Competitive Parity Method

• Pros
• Take advantage of the collective wisdom of the
  industry
• Cons
• Prisoners dilemma

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Bottom-Up Budgeting
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Bottom-Up Budgeting

• Objective and Task Method
• Payout Planning
• Quantitative Models

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Objective and Task Method

• Three steps
• Defining the communications objectives to be
  accomplished
• Determining the specific strategies and tasks
  need to attain them
• Estimating the cost associated with performance
  of these strategies and tasks

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Objective and Task Method
Establish Objectives (create awareness of new
product among 20 percent of target market)
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Payout Planning