Media Decisions Adapted from J. Scott Armstrong Updated November 2014 Media allocationR10

Learning Diary The lectures follow an experiential learning experience. To make this work properly: 1.Obtain a learning diary (paper). A 10 x 13 bound diary is suggested. 2.Keep it up to date. 3.Take the learning diary with you to all class sessions. 4.For self-learners, use the diary to track your learning progress for all of your learning activities. 2 Adprin.com

Objectives of this session To understand and apply these principles and techniques (not to convince you). Ask for clarification as needed. Set a goal for yourself on how many principles and techniques you plan to use by the end of this session. Even a goal of one will help you. Put this in your learning diary now. Note: We will discuss only some of the slides. When you go through the lecture on your own, view it in “Slide Show” and follow the experiential procedures. Adprin.com

Procedure Focus on understanding. Record questions in your learning diary that will help you to apply the techniques or principles, then, after you decide which ones you want to apply, try to answer these from the readings. If not clear, ask others for help. 4 Adprin.com

Media decisions Propose media budget Total... and why Allocate by media Allocate by time Adprin.com

Total budget and allocation by media Objective: To maximize ROI subject to satisfactory effects on other stakeholders –Write at least 12 alternative media possibilities in your learning diary for a frozen food product that is sold in grocery stores. –Structured evaluation vs. objectives Stakeholders –e.g. reduce pollution Structured Judgment for screening –e.g., DelphiDelphi Analysis (done individually; then compare) Adprin.com

Starting with a problem Read the Gardenburger ExerciseGardenburger Exercise See the TV commercial produced by a major advertising firm for the last Seinfeld show Please come in with your group’s recommendations 1. Should you air the commercial? Show how you analyzed this. 2. Would you have recommended changes in the commercial? 3. What alternative channels would you suggest other than TV? Adprin.com

Estimating the impact of advertising for a typical product in a typical market Please answer the following question. Caution: In the past, few people could provide reasonable answers. You work for a typical firm selling a typical product in a typical market in the U.S. Last year’s sales were 50,000 units, which was typical for the firm. Last year’s advertising budget was $1 million, which was typical for the firm. You plan to spend $1.1 million on advertising this coming year by using typical advertising. How many units do you expect to sell this coming year. Write your answer in your learning diary. ______________ units Adprin.com

Information about the products What would you estimate the unit sales if the product was: BMW cars?_______ cars Bud Lite beer? _______ truck-loads Write your answers and reasoning in your learning diary. Adprin.com

Bicycle sales Your friend owns a small bicycle shop. He sells about 1,000 bicycles per year with profits from the bike at $50 per bike. He has a Yellow Pages ad on which he spends $5,000 and distributes flyers for another $5,000. A. A consultant suggested that he double his spending on both media. B. Your friend is not sure whether advertising helps and was thinking about cutting the ad spend in half. How many bikes would he sell under each strategy? Write your answer and explanation in your learning diary. Adprin.com

Nurturing divergent views Meet in your groups and nurture divergent views. Someone might have reasonable answers, but he/she would be in the minority and unlikely to have supporters (5-minute work session). Present your group’s solutions to each question and explain your reasoning. Adprin.com

Five ways to set the media budget* 1. Previous years’ advertising expenditures for the brand. 2. Typical advertising expenditures for the firms in your industry as a percentage of sales (A/S) 3. Elasticity method 4. Decomposition 5. Experiment * Use more than one method and take an average. Adprin.com

Previous years’ advertising expenditures for the brand Graph previous years’ expenditures in real dollars. Working independently (in your learning diary): List the arguments favoring increases along with those favoring decreases. Recommend a percentage change for next year. The different estimates would then be averaged. Use the Delphi procedureDelphi Adprin.com

Typical expenditures for firms in your industry as a % of sales: the A/S ratio The typical expenditure method assumes that your competitors are rational. Before looking at the typical expenditures, ask experts to list all arguments as to whether you should be advertising more or less than what is typical for the industry. Then ask them to estimate how much your advertising should depart, in percentage terms, from the typical expenditure. Adprin.com

Elasticity method Use the elasticity method in cases where an existing product has been advertised. Advertising elasticity (or “sensitivity to advertising”) expresses the percentage change in unit sales given a one percent change in advertising expenditures. Given an estimated elasticity of 0.1, if advertising expenditure were raised by 10%, unit sales would go up by 1%. Adprin.com

Average advertising elasticities Typical 0.1 Product type Durable0.23 Nondurable0.09 Media Print0.13 TV0.03 ”Source: (Tellis 2010)Tellis 2010 Adprin.com

Elasticities are higher for persuasive ads Use the AdPrin audit to assess whether the ad is persuasive relative to a typical ad. Use your judgment as there are no standards currently.AdPrin audit Adprin.com

Answers to the “typical” problem Rule of thumb: advertising elasticities = 0.1 (thus, 50,500 units) Durable product elasticity > non-durable (greater sales for BMW) News leads to higher elasticities (greater sales for BMW) Adprin.com

Wright’s Rule Ad expenditure = (Elasticity) x (Gross margin per unit) x (forecasted unit sales) Adprin.com

Decomposition Make estimates for each element of the decision to advertise. Do this for any situation (e.g., for new products or existing products). The inputs for the method can come from judgment or data or both. In any event, provide support for each estimate. Adprin.com

Decomposition method for print ad Target market exposed to the ad = T Percentage of the above who: a.See the ad b.Read the ad (of “a”) c.Understand the ad (of “b”) d.Intend to purchase because of ad (of “c”) e.Actually purchase (of “d”) f.Repeat purchases from new buyers (% of “e”) ROI = {[(T) x (a) x (b) x (c) x (d) x (e) x (f) x (unit margin)]- cost of campaign} / (cost of campaign) Adprin.com

Media decomposition: IKEA Ad* Prime-time TV; Audience = 20 Million; Cost =$20,000 % Cumm. % A.Target market3030 B.Exposed to ad5015 C.Pay attention to ad D.Understand ad E.Intend to purchase F.Actually purchase Sales= 20M x = 2700 customers Profit= 2700 x $20 (marg. cont.) = 54,000 ROI= ($54,000 - $20,000)/$20,000= 170% *Subjective estimates by naïve subject. For illustrative purposes only. Adprin.com

Sources of estimates Data Expert judgment Example: Estimate the instructor’s weight as dressed (with shoes). Submit your estimate to one person to find the median. Adprin.com

Experiments The ideal way to allocate funds to advertising is to experiment. (Easy for direct-response advertising. For example, if the advertising will be done by direct mail, try different treatments for a sample of 10,000 names.) Examine the profit made from the resulting sales and divide by the costs of the direct-mail ads to determine the ROI. Adprin.com

Exercise for the milk industry ads The trade organization for milk was spending $50 million per year on advertising in the late-1990s. Total industry sales were $14 billion per year. They planned to spend $190 million on advertising starting in Increase devoted to the milk mustache print campaign (see sample ads). Target market is teenagers and young adults (because milk consumptions drops rapidly for these groups). Use the elasticity method to assess whether this is likely to be a successful campaign and write your results in your learning diary. Adprin.com

What? I know – you’ve never seen a cover girl with a mustache before? Adprin.com

Ideas for Application If you are not currently working for an organization, pick something to work on media allocation for, perhaps a charity. If you are in a class, design an ad for yourself as the owner of small advertising agency (commonly called a “house ad”). Create a sample media allocation plan for your “agency.”house ad 28 Adprin.com

Techniques In your diary, describe the techniques that you were able to use for your media allocation and rate your success (e.g., creativity, objective setting)rate your success 29 Adprin.com

Advice on learning techniques One study found that fewer than 10% of students were successful in applying new knowledge. This went to 20% if they actively applied what they were taught during a class session. It went to 90% when they worked with a learning partner and coached each other. Select techniques to applytechniques 30 Adprin.com

Follow-up: Complete prior to next session 1. ___ Go through this lecture on your own (It is on the Educational Materials page)Educational Materials 2.___Study Persuasive Advertising pages and record your reading time in your learning diary. Highlight techniques and principles that you want to apply in yellow.Persuasive Advertising Adprin.com