4550:%20Budgeting

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4550 Budgeting

• Professor Campbell
• 3/29/05

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Todays Plan

• Media Strategy Wrap up
• Budgeting

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Important Media Concepts

• Continuity
• Reach
• Frequency
• GRPs (and TRP)
• Effective Frequency
• Wearout
• Factors that influence Effective Frequency
• Effective Reach

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Effective Reach

• The number, or percent, of the target audience
  reached at (at least) the effective frequency
  level
• Effective reach should govern media tradeoffs and
  the media plan.

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Media Math Example
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Developing the Media Plan

• Matching the most appropriate media to the target
  market
• Which 1) media and 2) media vehicles are best to
  get my message to my chosen target?
• How do I maximize effective reach?

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Reality...

• Frequent use of secondary (index) data for
  setting target
• Index number 100 X of users in demographic
  segment/ of pop
• Demographic matching commonly used, with proxies
  for advertising exposure
• Reach and frequency goals are often set on
  atheoretical bases
• Media selected based on GRP, determined on the
  basis of media rating by demographics
• Relative costs determined by cost per thousand,
  cost per rating point, etc.

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Goals...

• Link media objectives to communication objectives
• Maximize communication impact with budget

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Summary

• Set Media Objectives
• Select Media Classes
• Based on objectives, target, analysis of media
  strengths and weaknesses, budget
• Select Media Vehicles
• Understand context, timing
• GRP Reach X Frequency
• This number hides information that you want
• Use frequency distribution

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Summary, continued

• Think about how many targets you want to reach,
  how often, and how smoothly over time
• Generally speaking, want a continuous schedule
• Avoid wearout
• Estimate effective frequency
• Market, media message factors influence
• Maximize effective reach

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Budgeting Approaches

• Top-Down Approaches
• Marginal Analysis Maximizing Profit
• Percentage of Sales
• Competitive Parity
• Equate Market Share and Share of Voice
• Build-Up Approach
• The Objective and Task Method

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The Marginal Analysis Maximizing Profit

• Continue to increase advertising expenditures
  until the marginal revenues produced are less
  than the incremental cost of the advertising (mr
  mc)
• Depends on the relationship
• Problems
• Limited budgets
• Sales may not be a very sensitive measure of the
  impact of communications
• Estimating the relationship between
  communications and sales can be very difficult
  and complex

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Percentage of Sales

• Use a rule of thumb of some amount of sales (flat
  percentage of last years sales, percentage of
  projected sales)

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Percentage of Sales

• Assume that each of the brands in the cereal
  industry have set their A/S ratios at the
  following levels.
• Quakers Life cereal 8
• Special K 11
• Total cereal 15
• If next years budgets are set following this
  rule, what does this imply for Life Cereal?

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Percentage of Sales Problems
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Competitive Parity

• Set budget according to competitive spending on
  communications (actual budget or industry norms
  of advertising/sales ratios)
• Recognizes the (negative) impact of competitive
  communications on own market share
• Recognizes that some expenditure is required to
  maintain market share
• Ensures that you stay in line with competitors

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Competitive Parity Problems

• Others may be wrong
• Different players in the market have different
  communications needs and tasks
• Accepts status quo

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Equate Market Share and Market Voice

• Set the budget such that the firms percentage of
  the total communication expenditures for the
  market is equal to the firms market share.
• Considers the relationship between share-of-voice
  and share-of-market
• Recognizes competitive effects

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Equate Market Share and Market Voice

• Example of SOV method
• Quakers Life cereal 20
• Special K 31
• Total cereal 30
• What does this imply for Life?

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Equate MS Market Voice Problems
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Switching Gears
Build-up Approach
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The Objective and Task Method

• Establish objectives, determine the tasks
  necessary to achieve the objectives, estimate the
  required expenditures for each task, and set the
  budget accordingly. Over periods, monitor results
  and re-evaluate objectives
• Based on theoretically-sound models of
  communication effectiveness
• Requires translation of objectives into tasks
  (e.g., communication objectives into media
  objectives such as Reach and Frequency)

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Establish
Objectives
Set
Budget
Determine
Specific
Tasks
Estimate
Associated
Costs
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The Objective and Task Method

• Problems
• Hard
• Time consuming

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Recommendations

• Use several methods simultaneously and look for
  convergence
• Examine A/S ratio for own brand and for
  competition and attempt to identify and
  understand factors that influence ratios.
• Trace the SOV and market share relationship in
  the industry, attempt to understand
• Undertake experiments to obtain answers to key
  questions
• Estimate required to achieve behavioral goals

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Conclusion - Budgeting

• Want to set budget to match what it is we are
  trying to achieve budget should be just enough
  to allow us to reach our communications
  objectives.