4550: Budgeting Professor Campbell 3/29/05

Today’s Plan Media Strategy: Wrap up Budgeting

Important Media Concepts Continuity Reach Frequency GRPs (and TRP) Effective Frequency Wearout Factors that influence Effective Frequency Effective Reach

The number, or percent, of the target audience reached at (at least) the effective frequency level Effective reach should govern media tradeoffs and the media plan.

Media Math Example 5 Total Exposures XX2XX2 XX2XX2 X1X1 XXX3XXX3 X1X1 XX2XX2 XXX3XXX30 XXXX4XXXX4 XX2XX Total Exposure Total ExposuresJIHGFEDCBAWeek Dodge Neon Advertised in Entertainment Weekly Magazine Target-Audience Member C F,H A,E,I,J D,G B 10% Audience MembersPercentage FFrequency Distribution (F) Summary Statistics

Developing the Media Plan Matching the most appropriate media to the target market –“Which 1) media and 2) media vehicles are best to get my message to my chosen target?” –“How do I maximize effective reach?”

Reality... Frequent use of secondary (index) data for setting target –Index number = 100 X % of users in demographic segment/% of pop Demographic matching commonly used, with proxies for advertising exposure Reach and frequency goals are often set on atheoretical bases Media selected based on GRP, determined on the basis of media rating by demographics Relative costs determined by cost per thousand, cost per rating point, etc.

Goals... Link media objectives to communication objectives Maximize communication impact with budget

Summary Set Media Objectives Select Media Classes –Based on objectives, target, analysis of media strengths and weaknesses, & budget Select Media Vehicles –Understand context, timing GRP = Reach X Frequency –This number hides information that you want –Use frequency distribution

Summary, continued Think about how many targets you want to reach, how often, and how smoothly over time –Generally speaking, want a continuous schedule –Avoid “wearout” Estimate effective frequency –Market, media & message factors influence Maximize effective reach

Budgeting Approaches Top-Down Approaches –Marginal Analysis Maximizing Profit –Percentage of Sales –Competitive Parity –Equate Market Share and Share of Voice Build-Up Approach –The Objective and Task Method

The Marginal Analysis Maximizing Profit Continue to increase advertising expenditures until the marginal revenues produced are less than the incremental cost of the advertising (mr = mc) –Depends on the relationship Problems –Limited budgets –Sales may not be a very sensitive measure of the impact of communications –Estimating the relationship between communications and sales can be very difficult and complex

Percentage of Sales Use a rule of thumb of some amount of sales (flat percentage of last year’s sales, percentage of projected sales)

Percentage of Sales Assume that each of the brands in the cereal industry have set their A/S “ratios” at the following levels. –Quaker’s Life cereal: 8% –Special K: 11% –Total cereal: 15% If next year’s budgets are set following this rule, what does this imply for Life Cereal?

Percentage of Sales: Problems

Competitive Parity Set budget according to competitive spending on communications (actual budget or industry norms of advertising/sales ratios) –Recognizes the (negative) impact of competitive communications on own market share –Recognizes that some expenditure is required to maintain market share –Ensures that you stay in line with competitors

Competitive Parity: Problems Others may be wrong Different players in the market have different communications needs and tasks Accepts status quo

Equate Market Share and Market Voice Set the budget such that the firm’s percentage of the total communication expenditures for the market is equal to the firm’s market share. –Considers the relationship between share- of-voice and share-of-market –Recognizes competitive effects

Equate Market Share and Market Voice Example of SOV method –Quaker’s Life cereal: 20% –Special K: 31% –Total cereal: 30% What does this imply for Life?

Equate MS & Market Voice: Problems

Switching Gears…

The Objective and Task Method Establish objectives, determine the tasks necessary to achieve the objectives, estimate the required expenditures for each task, and set the budget accordingly. Over periods, monitor results and re-evaluate objectives –Based on theoretically-sound models of communication effectiveness –Requires translation of objectives into tasks (e.g., communication objectives into media objectives such as Reach and Frequency)

Establish Objectives Determine Specific Tasks Estimate Associated Costs Set Budget

The Objective and Task Method Problems –Hard –Time consuming

Recommendations Use several methods simultaneously and look for convergence –Examine A/S ratio for own brand and for competition and attempt to identify and understand factors that influence ratios. –Trace the SOV and market share relationship in the industry, attempt to understand –Undertake experiments to obtain answers to key questions –Estimate $ required to achieve behavioral goals

Conclusion - Budgeting Want to set budget to match what it is we are trying to achieve – budget should be just enough to allow us to reach our communications objectives.