4Setting Total Promotion Budget How much to spend on promotion??!How does a company decide on its promotion budget?Four common methods to set total budget for advertisingAffordable MethodPercentage of Sales MethodCompetitive-Parity MethodObjective and Task Method
5Setting Total Promotion Budget Affordable MethodThis involves setting the promotion budget at levels management thinks the company can affordUsually used by small businesses with limited resourcesThis method ignores the effects of promotion on salesPlaces promotion last among spending priorities even when it’s criticalIt leads to an uncertain annual promotion budgetLong range market planning is thus difficultIt often results in under spending; however, it can lead to over spending
6Setting Total Promotion Budget Percentage of Sales MethodInvolves the setting of promotion budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales priceBased on availability of funds and not opportunitiesAdvantages of this method:Simple and easy to useEnables the construction of relationship behaviour – between promotion spending, selling price, and profit per unitDisadvantages of this method:Wrongfully views sales as the cause of promotion rather than result of promotionStrong brands with higher sales have biggest ad budgetsPrevents increased spend to advance a turnaround in low salesLong range planning is difficultRelies on past and what competitors are doing
7Setting Total Promotion Budget Competitive-Parity MethodThis is the setting of your promotion budget to match competitors’ budgetsGet industry promotion spending estimates from publications and set based on industry averageAdvantages:Prevents promotional wars with competitorsThis involves the collective wisdom of the industryDisadvantages:Competition doesn’t have all the answers. What if wrong?No two companies are the same. Own promotional needs.No evidence that competitive parity prevents promotional wars.
8Setting Total Promotion Budget Objective and Task MethodInvolves setting the budget based on what it wants to achieve with its promotionsIt’s the most logical budget setting methodThis method entails:Defining specific promotion objectivesDetermining the tasks needed to achieve objectivesEstimating the costs of performing the tasksThe total sum of costs is the proposed budgetAdvantages:Accountability for spend through assumptions measured via results achievedDisadvantages:It’s difficult to use – difficult to know which objectives will deliver
9Shaping the Promotion Mix Nature of Each Promotion ToolPlease refer to textbook Pages 440 – 442Promotion Mix StrategiesPush or Pull Promotion Mix StrategiesPush Strategy: A promotion strategy which utilises the sales force and trade promotion to push products through the channels. Producers promote the products to channel members who promote it to consumers.Pull Strategy: A promotion strategy which relies on spending plenty on advertising and consumer promotion to induce final consumers to purchase products. This creates a demand vacuum which pulls the product through the channels
12Promotion Mix Strategies A Push Strategy uses personal selling and trade promotionsA Pull Strategy uses advertising and consumer promotionIndustrial goods companies mainly use push strategiesDirect-marketing companies mainly use pull strategiesMost large companies will use a combination of both pull and push strategiesConsiderations when designing promotion mix strategies (see pages 443 and 444):Type of product and marketProduct life cycle stage
13Integrating the Promotional Mix Checklist for integrating marketing communications, (see pages 444 and 445)Start with customer touch pointsAnalyze trends – internal and externalAudit pockets of communication spendingGather together to plan communicationsCreate compatible themes, tones, quality across communication mediaCreate performance measures shared by all communication elementsAppoint a person responsible for persuasive communication efforts