1. Chapter 7 Establishing Objectives and Budgeting for the Promotional Program

2. McGraw-Hill/Irwin 7-2 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 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.

3. McGraw-Hill/Irwin 7-3 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. SALES? A Questionable Objective! Product Quality Promotion Distribution Competition Technology The Economy Price Policy SALES

4. McGraw-Hill/Irwin 7-4 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Advertising and Movement Toward Action Conative Realm of motives. Ads stimulate or direct desires. Affective Realm of emotions. Ads change attitudes and feelings Cognitive Realm of thoughts. Ads provide information and facts. Purchase Conviction Preference Liking Knowledge Awareness Point of purchase Retail store ads, Deals “Last-chance” offers Price appeals, Testimonials Competitive ads Argumentative copy “Image” copy Status, glamour appeals Announcements Descriptive copy Classified ads Slogans, jingles, skywriting Teaser campaigns

5. McGraw-Hill/Irwin 7-5 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Inverted Pyramid of Communications Effects 90% Awareness 70% Knowledge 40% Liking 25% Preference 20% Trial 5% Use Conative Cognitive Affective

6. McGraw-Hill/Irwin 7-6 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. The DAGMAR Approach D efine A dvertising G oals for M easuring A dvertising R esults

7. McGraw-Hill/Irwin 7-7 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Characteristics of Objectives Specific Communications Objectives Concrete Measurable Tasks Well-Defined Target Audience Existing Benchmark Measure Degree of Change Sought Specific Time Period

8. McGraw-Hill/Irwin 7-8 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. DAGMAR Difficulties Legitimate Problems 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. 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 too much structure curb genius.

9. McGraw-Hill/Irwin 7-9 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Advertising-Based View of Communications Purchase Behavior Purchase Behavior AttitudesKnowledgePreferenceConviction One-Way Linear Advertising Through Media Acting on Consumers

10. McGraw-Hill/Irwin 7-10 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Marginal Analysis Advertising / Promotion in $ Sales in $ Point A Profit Sales Gross Margin Ad. Expenditure

11. McGraw-Hill/Irwin 7-11 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. BASIC Principle 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.

12. McGraw-Hill/Irwin 7-12 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Problems with Marginal Analysis Assumption: Sales are the principal objective of advertising and/or promotion. Assumption: Sales are the result of advertising and promotion and nothing else.

13. McGraw-Hill/Irwin 7-13 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Advertising Sales/Response Functions Incremental Sales Advertising Expenditures A.Concave-Downward Response Curve Incremental Sales Advertising Expenditures Range ARange BRange C B.S-Shaped Response Function High Spending Little Effect Initial Spending Little Effect Middle Level High Effect

14. McGraw-Hill/Irwin 7-14 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Top Management Sets the Spending Limit The Promotion Budget Is Set to Stay Within the Spending Limit Top-Down Budgeting

15. McGraw-Hill/Irwin 7-15 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Total Budget Is Approved by Top Management Bottom-Up Budgeting Cost of Activities are Budgeted Activities to Achieve Objectives Are Planned Promotional Objectives Are Set

16. McGraw-Hill/Irwin 7-16 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Top-Down Approaches The Affordable Method What we have to spare. What's left to spend. Arbitrary Allocation Method No system. Seemed like a good idea at the time. Percentage of Sales Method Set percentage of sales or amount per unit. Competitive Parity Method Match competitor or industry average spending. Return on Investment Method Spending is treated as a capital investment.

17. McGraw-Hill/Irwin 7-17 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Objective and Task Method Establish Objectives (create awareness of new product among 20 percent of target market) Determine Specific Tasks (advertise on market area television and radio and local newspapers) Estimate Costs Associated with Tasks (create awareness of new product among 20 percent of target market)