Establishing Objectives and Budgeting for the Promotional Program

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1 Value of Establishing and Budgeting for the Promotional Program Prof. Pierre Xiao LU, Fudan University Focus & Coordination Plans & Decisions Measurement & Control Characteristics of Can Shape Corporate Images Attainable Realistic Measurable Not Mutually Exclusive Specific Marketing Versus Communications Marketing Generally stated in the firm s marketing plan Achieved through the overall marketing plan Quantifiable, such as sales, market share, ROI To be accomplished in a given period of time Must be realistic and attainable to be effective Vs. Communications Derived from the overall marketing plan More narrow than marketing objectives Based on particular communications tasks Designed to deliver appropriate messages Focused on a specific target audience Many Different Factors Affect Sales and promotion $ALE$ Competition Distribution Technology Price Product quality The economy 1

2 Direct Response Ads Seek Sales Some Communications Use Nontraditional Methods 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Sales As and Movement Toward Action Conative Realm of motives. Ads stimulate or direct desires. Affective Realm of emotions. Ads change attitudes and feelings Purchase Conviction Preference Liking Point of purchase Retail store ads, Deals Last-chance offers Price appeals, Testimonials Competitive ads Argumentative copy Image copy Status, glamour appeals Cognitive Realm of thoughts. Ads provide information and facts. Knowledge Awareness Announcements Descriptive copy Classified ads Slogans, jingles, skywriting Teaser campaigns Image Ads Can Have a Strong Effect on Preference Pyramid of Communications Effects 5% Use 20% Trial 25% Preference 40% Liking 70% Knowledge 90% Awareness 2

3 Sales in $ The DAGMAR Approach Pros and Cons of DAGMAR Define Goals for Measuring Awareness Comprehension Conviction Pros Assessment of campaign effectiveness Value of communicationbased objectives Measurement of stages Cons Problems with the response hierarchy Sales objectives Practicality and cost Results Action Less subjective Inhibition of creativity -Based View of Communications Through Media Balancing and Budgets What we re willing and able to spend Dollars What we need to achieve our objectives Goals Acting on Consumers Marginal Analysis BASIC Principle of Marginal Analysis Sales Gross Margin Increase If the increased cost is less than the incremental (marginal) return Ad. Expenditure Hold If the increased cost is equal to the incremental (marginal) return. Point A Profit / Promotion in $ Decrease If the increased cost is more than the incremental (marginal) return 3

4 Incremental Sales Incremental Sales Initial Little Effect Middle Level High Effect High Little Effect Assumptions for Marginal Analysis Sales/Response Functions Sales are the result of advertising and promotion, and nothing else Sales are the principal objective of advertising and promotion A. Concave- Downward Response Curve B. S-Shaped Response Function Expenditures Range A Range B Range C Expenditures 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Top-Down Budgeting Top-Down Budgeting Methods Competitive Parity Top Management Sets the Limit The Promotion Budget Is Set to Stay Within the Limit Arbitrary Allocation Top Management Percentage of Sales Return on Investment Affordable Method Bottom-Up Budgeting Objective and Task Method Total Budget Is Approved by Top Management Cost of Activities are Budgeted Establish (create awareness of new product among 20 percent of target market) Determine Specific Tasks (advertise on market area television and radio and local newspapers) Activities to Achieve Are Planned Estimate Costs Associated with Tasks (determine costs of advertising, promotions, etc.) Promotional Are Set Monitor and Adjust (monitor performance and adjust) 4

5 Competitor s Share of Voice High Low Media Expenditures Are There 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. Ad and Share of Voice Decrease find a Defensible Niche Increase to Defend Attack With Large SOV Premium Maintain Modest Premium Low Your Share of Market High 5