Establishing Objectives and Budgeting for the Promotional Program 7 Chapter One An Introduction to Integrated Marketing Communications Establishing Objectives and Budgeting for the Promotional Program McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Planning & Decision Making Value of Objectives Specific Objectives Communications Planning & Decision Making Relation to text This slide relates to material on pp. 209-210 of the text. Summary Overview This chapter examines the nature and purpose of objects and the role they play in guiding the development, implementation, and evaluation of an IMC program. The value of setting objectives include the following: Communications – setting objectives facilitates the coordination of the various groups working on the campaign. Many problems can be avoided if all parties have written, approved objectives to guide their actions and serve as a common base for discussing issues related to the promotional program. Planning and decision-making – specific promotional objectives guide the development of the integrated marketing communications plan. Objectives also guide decisions regarding strategic and tactical issues, such as creative options, media selection, and budget allocation. Choices should be made based on how well a particular strategy matches the firm’s promotional objectives. Measurement and control – objectives provide a benchmark against which the success or failure of the promotional campaign can be measured. Most organizations are concerned about the return on their promotional investment; comparing actual performance against measurable objectives is the best way to determine if the return justifies the expense. Use of this slide This slide can be used to introduce the importance of setting advertising and promotion objectives. Measurement & Evaluation

Characteristics of Objectives Specific Attainable Measurable Relation to text This slide relates to material on p. 210 of the text. Summary Overview This slide summarizes the characteristics of good objectives, which should be specific, measurable, quantifiable (delineates target market and notes time frame), realistic, and attainable. Use of this slide This slide can be used to discuss the various characteristics of good communication and promotional objectives. While the task of setting good objectives can be complex and difficult, it must be done properly as specific objectives are the foundation upon which all advertising and promotional decisions are made. Realistic Quantifiable

Measurable Results Relation to text This slide relates to page 209 and Exhibit 7-1 of the text. Summary Overview Most organizations are concerned about the return on their promotional investment. However, this does not mean that the return is always higher sales. This ad, for instance, is designed to improve the public image of Ford by promoting its support in the fight against breast cancer. Use of this slide This slide can be used as part of a discussion about the objectives of specific advertising campaigns and how ROI isn’t always measurable.

Marketing vs. Communications Objectives Marketing Objectives 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 Communications Objectives 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 Relation to text This slide relates to material on pp. 210-211 of the text. Summary Overview Communications objects are not the same as marketing objectives. This slide summarizes the differences between the two. Marketing objectives Stated in the firm’s marketing plan Statements of what is to be accomplished by the overall marketing plan Measurable outcomes such as sales, market share, ROI over a specific period of time Must be realistic and attainable Communications objectives Derived from the overall marketing plan Generally more narrow than marketing objectives Based on the particular communications task required to deliver the appropriate messages to the target audience Are focused on a specific target audience Use of this slide This slide can be used to discuss the differences between marketing and communications objectives. Vs.

Increased Market Share Sales Objectives Increased Market Share Increased Sales Brand Extensions Relation to text This slide relates to pp. 211-212 of the text. Summary Overview This slide shows that sales objectives, such as increased sales, increased market share, and resulting brand extensions, all have the overriding objective of increasing sales and profits. Use of this slide Use this slide to point out that sales objectives focus on a measurable objective, making more money, versus communications objectives, which may seek intangible results, such as improving the company’s image.

Factors Influencing Sales Technology Competition The economy Advertising & promotion Relation to text This slide relates to material on pp. 212-214 and Figure 7-1. Summary Overview It is generally accepted that advertisers need to think about how a promotional program will influence sales. However, sales are a function of many factors, not just advertising and promotion. This chart shows the various factors that can affect sales. Use of this slide This slide can be used to discuss marketers’ use of sales as a communications objective and how such sales are affected by more than the advertising campaign. Product quality Distribution Price

Where Sales Objectives are Appropriate Relation to text This slide relates to pp. 214-215 of the text. Summary Overview Although there can be many problems in using sales as an objective for a promotional campaign, in certain situations it is appropriate. To promote sales of the MINI automobile in the United States, MINIs were stacked on top of SUVs that toured the country to bring attention to the brand. Seats were also removed from sports stadiums, and MINIs were placed on display. Wallet cards were also handed out that encouraged interested parties to visit the MINIUSA.com website to create a personalized MINI and sign up to become a “MINI Insider.” These nontraditional, integrated advertising efforts translated into higher sales and thousands of pre-orders. Use of this slide Use this slide to facilitate a discussion of nontraditional, integrated advertising campaigns.

Where Sales Objectives are Appropriate Relation to text This slide relates to pp. 214-215 of the text. Summary Overview Direct response and retail ads often have sales objectives as well. Marketing and brand managers under pressure to show sales results often take a short-term perspective in evaluating advertising and sales promotion programs. They are often looking for a quick fix for declining sales or loss of market share. Campaigns and ad agencies may be changed if sales expectations are not being met, and many companies want agencies to accept incentive-based compensation systems tied to sales performance. Use of this slide This slide can be used as part of a discussion about direct response and retail ads, as well as the consequences of not meeting sales expectations.

Test Your Knowledge Which of the following statements about communications objectives is true? A) Sales goals are easily translated into communications objectives. B) It can be difficult to determine the relationship between communications objectives and sales performance. C) Communications objectives cannot serve as operational guidelines for planning, executing, and evaluating promotional programs. D) Marketing managers often do not recognize the value of setting communications objectives. Ans: B

From Awareness to Action Affective Realm of emotions. Ads change attitudes and feelings Cognitive Realm of thoughts. Ads provide information and facts Conative Realm of motives. Ads stimulate or direct desires Purchase Conviction Preference Liking Knowledge Awareness Teaser campaigns “Image” copy Status, glamour appeals Announcements Descriptive copy Classified ads, slogans, Jingles, skywriting Competitive ads Argumentative copy Point of purchase Retail store ads, deals “Last-chance” offers Price appeals Testimonials Relation to text This slide relates to material on pp. 215-217 and Figure 7-2 of the text. Summary Overview Marketers realize that they must provide relevant information and create favorable predispositions toward their brand before purchase behavior will occur. This slide shows the “hierarchy of effects” advertising model, which was developed by Lavidge and Steiner. The model shows the steps that consumers must move through before making a purchase. Examples of various types of promotion or advertising relevant to each step are shown on the right side of the slide. The left side of the slide shows the behavioral dimensions of a purchase decision, from thoughts to emotions to motives. Use of this slide This slide can be used to explain the hierarchy of effects model and show the various steps consumers move through before making a purchase. The examples of the various types of promotion or advertising relevant to the various steps are included to show the promotional programs that can influence the consumers’ movement.

Creating an Image Relation to text This slide relates to material on pp. 215-217 and Figure 7-7 of the text. Summary Overview This ad for Philips is designed to inform consumers of the company’s focus on technology that makes sense and is simple. While there is no call for immediate action, the ad creates favorable impressions about the company by creating a distinct image. Consumers will consider this image when they enter the market for products in this category. Use of this slide This slide can be used to discuss how some advertisements do not require immediate action on the part of the consumer, but encourage consumers to consider the brand when they enter the market for products in this category.

Communications Effects Pyramid 20% Trial Conative 40% Liking Affective 90% Awareness Cognitive 5% Use 70% Knowledge/Comprehension 25% Preference Relation to text This slide relates to material on pp. 217-218 and Figure 7-3 of the text. Summary Overview This slide shows the communications effects pyramid. It shows that advertising and promotion perform communications tasks in the same way a pyramid is built, by first accomplishing lower-level objectives, such as increasing consumer awareness and knowledge. Subsequent tasks involve moving consumers who are aware of or knowledgeable about the product or service to higher levels in the pyramid. The stages at the base of the pyramid are easier to accomplish than those toward the top, such as trial and repurchase or regular use. Thus, the percentage of prospective customers declines as they move up the pyramid. Use of this slide This slide can be used to discuss the effects of communications. Marketing communications are designed to move customers from awareness to purchase, but it will not happen immediately. Therefore, advertisers set their communications objectives in relation to where the target audience lies, with respect to the various blocks of the pyramid. Refer to Figure 7-4 of the text for an example of how the communications effects pyramid can be used to set objectives.

Define Advertising Goals for Measuring Results The DARMAR Approach Action Awareness Conviction Comprehension Relation to text This slide relates to material on p. 220 of the text, which discusses the DAGMAR approach to setting objectives. Summary Overview In 1961, Russell Colley prepared a report for the Association of National Advertisers titled Defining Advertising Goals for Measured Advertising Results. In it, Colley developed a model for setting advertising objectives and measuring the results of an ad campaign that became known by its acronym. Colley proposed that the communications task be based on a hierarchical model of the communications process, with four stages: Awareness… making the consumer aware of the existence of the brand or company. Comprehension… developing an understanding of what the product is and what it will do for the consumer Conviction… developing a mental disposition in the consumer to buy the product. Action… getting the consumer to purchase the product. Many promotional planners use this model as a basis for setting objectives and assessing the effectiveness of promotional campaigns. Use of this slide This slide can be used to introduce the DAGMAR model and the value of setting specific communications objectives.

Characteristics of Objectives Concrete, measurable tasks Well-defined audience Relation to text This slide relates to pp. 220-222 of the text. Summary Overview The DAGMAR model argues that advertising objectives should be stated in terms of: Concrete and measurable communications tasks A specific target audience A benchmark starting point and degree of change sought, and A specified time period for accomplishing the objectives Use of this slide Use this slide to introduce the second major contribution of DAGMAR to the advertising planning process… a definition of what constitutes a good objective. Benchmark measures Specified time period

Pros and Cons of DAGMAR Pros Cons Focus on communications objectives Measurement of stages Better understanding of goals and objectives Less subjective Cons Inhibition of creativity Relies heavily on the response hierarchy May not increase sales Practicality and cost Relation to text This slide relates to material on pp. 222-207 of the text. Summary Overview This slide summarizes the positive influence DAGMAR has had on the advertising industry, plus the criticisms by some in the advertising field. From a positive standpoint, DAGMAR focuses advertisers’ attention on the value of using communications-based objectives, rather than sales-based objectives, to measure advertising effectiveness. It also encourages the measurement of stages in the response hierarchy to assess a campaign’s impact, and provides a better understanding of the goals and objectives toward which planners’ efforts should be directed. This results in less subjectivity and leads to better communication and relationships between client and agency. From a negative standpoint, the DAGMAR approach relies heavily on the hierarchy of the effect model, and consumers do not ways follow this sequence of communications effects before making a purchase. Further, some argue that the only relevant measure of advertising objectives is sales; they have little tolerance for ad campaigns that achieve communications objectives but fail to stimulate sales. Other critics argue that DAGMAR is practical only for large companies with large advertising budgets, because it takes expensive research to establish quantitative benchmarks and measure changes in the response hierarchy. A final criticism is that DAGMAR inhibits advertising creativity by imposing too much structure. Use of this slide This slide can be used to discuss the pros and cons of using DAGMAR. The DAGMAR process has considerable influence on the advertising planning process, but it has not been totally accepted by everyone in the advertising field.

Advertising-Based View of Communications Acting on Consumers Ads Relation to text This slide relates to material on pp. 224-226 and Figure 7-7 of the text. Summary Overview This slide is a chart showing a traditional advertising-based view of marketing communications. This approach is based on a hierarchical response model and considers how marketers can develop and disseminate advertising messages to move consumers along an effects path. It is also known as inside-out planning. The focus is on what the marketer wants to say, when the marketer wants to say it, about things the marketer believes are important about the brand, and in the media forms the marketer wants to use. Use of this slide This slide can be used to discuss the traditional advertising-based view of marketing communications. The focus of this planning process is communicating with the target audience by using the traditional hierarchy of response model, with the goal of moving the consumer along the pathway towards purchase. An alternative to this approach is called zero-based communications planning, which involves determining what tasks need to be done, which marketing communications functions should be used, and to what extent.

Utilizing a Variety of Media Relation to text This slide relates to pp. 224-226 of the text. Summary Overview A promotional planner should determine what role various promotion techniques, publicity, public relations, direct marketing, and personal selling will play in the overall marketing program, and how they will interact with advertising, as well as with one another. The marketing communications program for the San Diego Zoological Society has multiple objectives. First, it must provide funding for the society’s programs and maintain a large and powerful base of supporters for financial and political strength. It must educate the public about the society’s programs, and maintain a favorable image on a local, regional, national, and international level. Another major objective is to draw visitors. To achieve these objectives, the society’s IMC program employs a variety of integrated marketing communication tools, including the website shown on this slide. Use of this slide Use this slide and the next to facilitate a discussion of how the San Diego Zoological Society uses a variety of IMC tools to promote its two major attractions.

San Diego Zoo Protect Endangered Species Relation to text This slide relates to pp. 224-226 of the text. Summary Overview This slide contains a commercial for the San Diego Zoological Society, the organization that operates the San Diego Zoo and Wild Animal Park. The Society’s extensive IMC program includes public relations and cause-related marketing. This commercial is part of the Society’s support of the cause to save endangered species by creating public awareness of the problem. The TV spot was actually run as a PSA (public service announcement) and supported by print and radio PSAs as well. Use of this slide This slide can be used to demonstrate the type of public relations efforts engaged in by a major organization, such as the San Diego Zoological Society. The protection of endangered species is obviously an appropriate cause for the Society to promote, and they have been very successful in increasing the public’s awareness of this important issue. *Click outside of the video screen to advance to the next slide

Establishing & Allocating the Promotional Budget Internet Group Sales Direct Marketing Sponsorship Underwriting Public Relations Sales Promotions Relation to text This slide relates to material on p. 226 and Figure 7-8 of the text. Summary Overview This slide introduces the topic of promotional budget allocation. Promotional programs are often thought of only in terms of how much money is going to be spent. We don’t often think of how the monies will be allocated, or about the recipients of these dollars. Use of this slide This slide can be used as an introduction to the budgeting process.

Test Your Knowledge In marginal analysis, all of the following should be considered except: A) Sales B) Fixed costs of advertising C) Advertising expenditures and other variable costs D) Gross margin E) Net worth Ans: E

Establishing a Budget Relation to text This slide relates to material on pp. 226-228 and Figure 7-9 of the text. Summary Overview This slide shows a graphical representation of the concept of marginal analysis. As advertising and promotion expenditures increase, sales and gross margins also increase to a point, but then level off. Profits are a result of the gross margin minus advertising expenditures. According to this concept, a firm would continue to spend advertising dollars as long as the revenues created by the expenditures exceeded the advertising costs. As shown on the graph, the optimal expenditure level is the point at which costs equal the revenues they generate (point A). Use of this slide This slide can be used to introduce the concept of marginal analysis and how it relates to the advertising budgeting process.

Budget Adjustments Increase Spending If the cost is less than the marginal return Hold Spending If the cost is equal to the incremental return Relation to text This slide relates to material on pp. 226-228 and Figure 7-9 of the text. Summary Overview If advertising expenditures are greater than the revenues generated by the ads, the budget should be scaled down. If revenues are higher, a larger budget may be in order. Although this budgeting method seems logical, certain weaknesses limit its usefulness. These weaknesses include the assumptions that: Sales are a direct result of advertising and promotional expenditures and can be measured Advertising and promotion are solely responsible for sales The difficulty of determining the effects of the promotional effort on sales and revenues also limits its applicability. Use of this slide This slide can be used as a continuation of the discussion on establishing and adjusting advertising budgets. Decrease Spending If the cost is more than the incremental return

Assumptions for Marginal Analysis Sales are a direct measure of advertising and promotions efforts Sales are determined solely by advertising and promotion Relation to text This material relates to material on pp. 227-228 of the text. Summary Overview This slide summarizes two basic assumptions of marginal analysis that must be considered when using the concept to determine the advertising budget. These assumptions are as follows: Sales are a direct result of advertising and promotional expenditures and nothing else. Many marketers feel that it is very difficult to measure the influence of advertising on sales which limits the value of marginal analysis. Advertising and promotion are rarely the only factors that are responsible for sales as other elements of the marketing mix including product/service factors, price, and distribution all contribute to the success of the company. Sales are the principal objective of advertising and promotion. Marginal analysis assumes that sales are the principal objective of advertising and promotion. As discussed in this chapter, marketers can have a variety of other objectives for their advertising and promotion programs. Use of this slide This slide can be used to show the basic assumptions related to the use of marginal analysis as an advertising budgeting method. Because of the difficulties associated with marginal analysis, it is seldom used as a basis for budgeting (except for direct-response advertising).

Sales Response Models Incremental Sales Advertising Expenditures A. Concave-Downward Response Curve Incremental Sales Advertising Expenditures Range A Range B Range C B. S-Shaped Response Function High Spending Little Effect Initial Spending Middle Level High Effect Relation to text This slide relates to material on page 228-229 and Figure 7-10 of the text. Summary Overview This slide show two models of the advertising/sales response function. A lot of research and discussion has gone into trying to determine the true relationship between advertising and sales and the shape of the response curve. Most advertisers subscribe to one of two models of the advertising/sales response function: The concave-downward function, which assumes that the effects of advertising spending follow the microeconomic law of diminishing returns. That is, as the amount of advertising increases, its incremental value decreases. The logic is that those with the greatest potential to buy will likely act on the first (or earliest) exposures, while those less likely to buy are not likely to change as a result of the advertising. The S-shaped response function, which assumes that initial outlays of the advertising budget have little impact (range A). However, after a certain budget level has been reached (range B) advertising and promotional efforts begin to have an effect, and additional increments of expenditures result in increased sales. When advertising expenditures enter range C, however, incremental spending will have little additional impact on sales. Use of this slide This slide can be used to explain the two models of the advertising sales/response function. Although there are some weaknesses associated with these models, they do provide managers with a theoretical basis of how the relationship between advertising spending and sales might work.

Factors Influencing Advertising Budgets Hidden product qualities Product life cycle Product price Product durability Relation to text This slide relates to pp. 229-230 of the text, and Figure 7-11. Summary Overview This slide shows some of the additional factors that should be considered when establishing ad advertising budget. In one comprehensive study, more than 20 variables were shown to affect the advertising/sales ratio. For example, products characterized as large-dollar purchase and those in the maturity or decline stages of the product would be less likely to benefit from an advertising campaign. Use of this slide Use this slide to introduce some of the additional factors that should be considered when making budget appropriation decisions. Purchase frequency Differentiation

Top-Down vs. Bottom-Up Budgeting Relation to text This slide relates to pp. 230-231 of the text, and Figure 7-13. Summary Overview This slide outlines the top-down and bottom-up approaches to budgeting. In the top-down approach, a budget is established by management and then the monies are allocated to the various departments. The goal of this method is usually to insure that the promotional budget stays within the limits set by upper management. Spending levels are essentially predetermined and have no true theoretical basis. With a bottom-up approach, the budget is based on consideration of the firm’s pre-determined communications objectives. The primary advantage of this approach is that the budget is driven by the objectives to be attained, rather than the predetermined amount management is willing to spend. Use of this slide This slide can be used to introduce top-down and bottom-up budgeting methods.

Top-Down Budgeting Methods Affordable Method Top Management Return on Investment Arbitrary Allocation Relation to text This slide relates to material on pp. 231-237 of the text. Summary Overview This slide shows the various top-down budgeting methods. They are: Affordable method – the firm determines the amount to be spent on the various areas such as production and operations and then allocates what is left to advertising and promotion. Arbitrary allocation – budget is set by management based on what is felt to be necessary. No theoretical basis underlies the budgeting process. Percentage of sales – advertising and promotion budget is based on the sales of product. Determined by taking either a percentage of actual sales, or anticipated revenue from sales. Competitive parity – setting budgets on the basis of what competitors spend. Usually accomplished by matching the same percentage of sales expenditures as competitors. Return on investment – advertising and promotions are considered investments, and the budget appropriation is based on the returns the company feels it will generate from advertising Studies have shown the percentage of sales and arbitrary method to be most popular. Use of this slide This slide can be used to discuss top-down budgeting methods. Although these methods have advantages and disadvantages, they are popular because of tradition and top managements’ desire for control. Percentage of Sales Competitive Parity

Test Your Knowledge Well known brand name products do not receive incremental advantages from increased dollar expenditures on advertising. Once the ad hits the market, subsequent budget increases result in little or no incremental gains. This is best explained by: A) Arbitrary allocation B) The objective and task method C) Competitive parity D) An S-shaped response E) Rapidly diminishing returns Ans: E

Object and Task Method Isolate objectives Determine tasks required Reevaluate objectives Determine tasks required Estimate required expenditures Monitor Relation to text This slide relates to material on pp. 237-240 of the text. Summary Overview This slide outlines the steps of the objective and task method of budgeting, which reflects a bottom-up approach. The specific steps include: Isolate objectives – a company will have two sets of objective to accomplish… the marketing objectives and the communications objectives. After the marketing objectives are established, the specific communications objectives that will accomplish the marketing objectives must be determined. Determine specific tasks – determine the specific tasks needed to accomplish the communication objectives. May include advertising in various media, sales promotions, and/or other elements of the promotional mix. Estimate required expenditures – using build-up analysis, determine the estimated costs associated with the tasks developed in the previous step. Monitor – performance should be monitored and evaluated in light of the budget appropriated. Reevaluate objectives – once specific objectives have been attained, monies may be better spent on new goals. Use of this slide This slide can be used to discuss the objective and task method of setting the advertising and promotion budget. The main advantage of using this approach is that the budget is driven by the objectives to be attained rather than some predetermined amount management is willing to spend. A disadvantage of this method is the difficulty in determining which tasks will be required and the costs associated with each.

Payout Planning Relation to text This slide relates to page 240 of the text, and Figure 7-21. Summary Overview The first months of a new product’s introduction typically require heavier-than-normal advertising and promotion to stimulate product awareness and subsequent trial. To determine how much to spend, marketers often develop a payout plan that projects the revenues the product will generate, as well as the costs it will incur, over two to three years. A three-year payout plan is shown on this slide. The product will lose money in year 1, almost break even in year 2, and show a profit by the end of year 3. Note that the cost of advertising and promotion is highest in year 1, and declines in years 2 and 3. Use of this slide This slide can be used to introduce the topic of payout planning.

Quantitative Models Relation to text This slide relates to pp. 240-241 of the text. Summary Overview Attempts to apply quantitative models to budgeting have had limited success. Generally, these methods employ computer simulation models involving statistical techniques, such as multiple regression analysis, to determine the relative contribution that the advertising budget is making to sales. Because of problems associated with these methods, their acceptance has been limited. As these methods are improved and refined, they may achieve more widespread success. Use of this slide Use this slide to point out that quantitative budgeting models are available, but are not in widespread use.

Allocating to IMC Elements Relation to text This slide relates to material on pp. 242-243 and Figure 7-23 of the text. Summary Overview This slide shows how advertising expenditures were allocated in 2005, with projections through 2009. Note that while various media will experience gains and losses, all are expected to gain in total dollars spent. Rapidly rising media costs, the ability of sales promotions to motivate product trial, maturing of the product and/or brand, and the need for more aggressive promotional tools can also lead to shifts in strategy and expenditures. Other factors that may influence budget allocation include client/agency policies, market size, market potential, and market share goals. Use of this slide This slide can be used to discuss how advertisers distribute their funds among the various advertising venues, and how those allocations are expected to shift over time.

Share of Voice Effect Decrease–find a defensible niche Increase to defend High Competitor’s Share of Voice Attack with large SOV premium Maintain modest spending premium Relation to text This slide relates to material on pp. 244-245 and Figure 7-25 of the text. Summary Overview This chart outlines strategies for advertising spending based on a company or brand’s market share and a competitor’s share-of-voice (SOV). Share-of-voice refers to a company or brand’s percentage of the advertising messages, compared to all of the advertising messages for that product or service. Recommended spending strategies shown in the chart are based on different market share and share of voice scenarios, and suggest the following: When market share is high and competitor’s SOV is high, increase to defend market share When market share is high and competitor’s SOV is low, maintain a modest spending premium to hold market share When market share is low and a competitor’s SOV is high, decrease overall spending and find a defensible market niche When market share is low and competitor’s SOV is low, attack with a large SOV premium to increase market share Use of this slide This slide can be used to discuss the various ad spending strategies available to marketers given their market share and competitor’s share-of voice. Low Low High Your Share of Market

There is no evidence to support any of these! 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. Relation to text This slide relates to material on p. 245 of the text. Summary Overview Some studies propose that firms and/or brands maintaining a large share of the market have an advantage over smaller competitors. Thus, they can spend less money on advertising and realize a better return. Larger advertisers get better advertising rates, have declining production costs, and can advertise several products jointly. They are also more likely to enjoy more favorable time and space positions, cooperation of middlepersons, and favorable publicity. Kent Lancaster found that this theory does not hold true, and that larger brand share products might actually be at a disadvantage. The leading brands spend on average of 2.5% more than their brand share on advertising. Use of this slide This slide can be used to introduce the concept of economies of scale in advertising. Despite some evidence supporting the notion of economies of scale in advertising, most research has concluded that there are no real economies of scale to be accrued from the size of the firm or the market share of the brand. Proposition III There is a static relationship between advertising costs per dollar of sales and the size of the advertiser. There is no evidence to support any of these!

Organizational Characteristics Factors that influence advertising and promotion budgets The organization’s structure Power and politics The use of expert opinions Characteristics of the decision maker Approval and negotiation channels Pressure on senior managers to arrive at the optimal budget Relation to text This slide relates to pp. 245-246 of the text. Summary Overview In a review of the literature on how allocation decisions are made between advertising and sales promotion, George Low and Jakki Mohr concluded that organizational factors play a role in how communications dollars are spent. These factors vary from one organization to another, and each influences the amount assigned to advertising and promotion. Use of this slide Use this slide to present the organizational characteristics that have an impact on the allocation of an advertising and communications budget.