Marketing Management 20th of June 2011

Communicating Customer Value Integrated Marketing Communications Strategy

Total Promotion Budget and Mix

Setting 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 advertising Affordable Method Percentage of Sales Method Competitive-Parity Method Objective and Task Method

Setting Total Promotion Budget Affordable Method This involves setting the promotion budget at levels management thinks the company can afford Usually used by small businesses with limited resources This method ignores the effects of promotion on sales Places promotion last among spending priorities even when it’s critical It leads to an uncertain annual promotion budget Long range market planning is thus difficult It often results in under spending; however, it can lead to over spending

Setting Total Promotion Budget Percentage of Sales Method Involves the setting of promotion budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales price Based on availability of funds and not opportunities Advantages of this method: Simple and easy to use Enables the construction of relationship behaviour – between promotion spending, selling price, and profit per unit Disadvantages of this method: Wrongfully views sales as the cause of promotion rather than result of promotion Strong brands with higher sales have biggest ad budgets Prevents increased spend to advance a turnaround in low sales Long range planning is difficult Relies on past and what competitors are doing

Setting Total Promotion Budget Competitive-Parity Method This is the setting of your promotion budget to match competitors’ budgets Get industry promotion spending estimates from publications and set based on industry average Advantages: Prevents promotional wars with competitors This involves the collective wisdom of the industry Disadvantages: 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.

Setting Total Promotion Budget Objective and Task Method Involves setting the budget based on what it wants to achieve with its promotions It’s the most logical budget setting method This method entails: Defining specific promotion objectives Determining the tasks needed to achieve objectives Estimating the costs of performing the tasks The total sum of costs is the proposed budget Advantages: Accountability for spend through assumptions measured via results achieved Disadvantages: It’s difficult to use – difficult to know which objectives will deliver

Shaping the Promotion Mix Nature of Each Promotion Tool Please refer to textbook Pages 440 – 442 Promotion Mix Strategies Push or Pull Promotion Mix Strategies Push 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

Promotion Mix Strategies

Promotion Mix Strategies

Promotion Mix Strategies A Push Strategy uses personal selling and trade promotions A Pull Strategy uses advertising and consumer promotion Industrial goods companies mainly use push strategies Direct-marketing companies mainly use pull strategies Most large companies will use a combination of both pull and push strategies Considerations when designing promotion mix strategies (see pages 443 and 444): Type of product and market Product life cycle stage

Integrating the Promotional Mix Checklist for integrating marketing communications, (see pages 444 and 445) Start with customer touch points Analyze trends – internal and external Audit pockets of communication spending Gather together to plan communications Create compatible themes, tones, quality across communication media Create performance measures shared by all communication elements Appoint a person responsible for persuasive communication efforts

See you next time. Cheers Guys!