Overview of Advertising Management: Messages, Media, and Measurement Chapter Nine Overview of Advertising Management: Messages, Media, and Measurement

Chapter Nine Objectives Understand the magnitude of advertising and the percentage of sales revenue companies invest in this marcom tool. Recognize that advertising can be extraordinarily effective but that there is risk and uncertainty when investing in this practice. Appreciate the various functions advertising is capable of performing.

Chapter Nine Objectives Explore the advertising management process from the perspective of clients and their agencies. Understand the functions agencies perform and how they are compensated. Explore the issue of when investing in advertising is warranted and when disinvesting is justified. Examine advertising elasticity as a means for understanding the contention that “strong advertising is an investment in the brand-equity bank.”

Is Advertising Rocket Science? “The truth is that advertising is harder than rocket science. It’s news when a rocket launch FAILS. It’s news when an ad campaign launch SUCCEEDS.”

Advertising Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future.

Magnitude of Advertising 2005 $280 Billion U.S. Worldwide $900 spent on advertising for every man, woman, and child in the United States. $550 Billion

Some Top Spenders in U.S. Advertising Company Advertising Dollars General Motors $3.43 Billion Proctor & Gamble $3.32 Billion Time Warner $3.1 Billion Pfizer $2.84 Billion U.S. Government $1.1 Billion

Advertising-to-Sales Ratios Average 2 to 10% Ranging from 1.4% To 30.7%

Advertising Effects Are Uncertain

Advertising Effects Are Uncertain “If you want your brand to be fit, it’s got to exercise regularly. When you get the opportunity to go to the movies or do something else instead of working out, you can do that once in a while—that’s [equivalent to] shifting funds into [sales] promotion. But it’s not a good thing to do. If you get off the regimen, you will pay for it later.” Jennifer Lawrence, P&G

Advertising Functions Informing Influencing Reminding and Increasing Salience Adding Value Assisting Other Company Efforts

Informing Make consumers aware of new brands. Increase TOMA (Top of Mind Awareness) Teach new uses for existing brands (called usage expansion advertising) Campbell’s soup for formal family dinners and for breakfast Special K for afternoon or late-night snacking

Influencing

Reminding and Increasing Salience Making a brand more salient: enriching the memory trace for a brand so that the brand comes to mind in relevant choice situations. Increasing the customer’s interest in mature brands and the likelihood of choosing brands that might have otherwise not been chosen.

Adding Value Three ways a company can add value to its offerings: Innovating Improving quality Altering consumer perceptions

Assisting Other Company Efforts Advertising may be used as a vehicle for delivering coupons and sweepstakes Assisting sales representatives Pre-selling a company’s products by introducing the product and legitimizing salespeople’s claims. Augment the effectiveness of price deals.

The Advertising Management Process

The Role of Advertising Agencies Three alternative ways to perform the advertising function: Use an in-house advertising operation Purchase advertising services on an ad-as-needed basis Select a full-service advertising agency

Top-25 U.S. Advertising Agencies in Ad Revenue, 2003

Alternative ways to perform the advertising function In-house advertising operation Necessitates employing an advertising staff and absorbing the operation costs Unprofitable unless a company does a large amount of continual advertising

Alternative ways to perform the advertising function Full-service advertising agency Advantages In-depth knowledge and skills Obtaining negotiating muscle with the media Coordinating advertising and marketing efforts Disadvantages Some control is lost Larger clients are favored over small clients Occasionally inefficient in media buying

Alternative ways to perform the advertising function A la carte Advantages Use services only when they are needed Availability of high-caliber creative talent Potential cost efficiencies Disadvantages Specialists approach client problems in a stereotyped fashion Lack of cost accountability Financial instability of smaller boutiques

Advertising Agency Organization Creative Services Develop advertising copy and campaigns Copywriters, production people, and creative directors Media Services Research Services Account Management

Advertising Agency Organization Creative Services Selecting the best advertising media Media planners develop overall media strategy Media buyers procure the selected media Media Services Research Services Account Management

Advertising Agency Organization Creative Services Study clients’ customers’ buying habits, purchase preferences, and responsiveness Focus groups, mall intercepts, acquisition of syndicated research data Media Services Research Services Account Management

Advertising Agency Organization Creative Services Link the agency with the client Act as liaisons so that the client does not need to interact directly with several different service departments and specialists Media Services Research Services Account Management

Agency Compensation Three Sources Commissions from media (15%) Reduced commission system(<15%) Three Sources Labor-based fee system Outcome-based

Ad Investment Consideration Profit=Revenue –Expenses Revenue =Price X Volume Volume = Trial + Repeat

Which Position is More Acceptable? The Case for Investing: the belief that advertising can increase profitability by increasing sales volume, enabling higher selling prices, and thus increasing revenue beyond the incremental advertising expense. The Case for Disinvesting: Firms often choose to reduce advertising expenses either when a brand is performing well or during economic recession. The belief is that an expense reduction, with all else held constant, will result in increased profits.

Elasticity A measure of how responsive the demand for a brand is to changes in marketing variables such as price and advertising.

How to Increase Profit Maintain status quo Build Image Via Advertising Grow Volume via Price Discounting Increase Advertising and/or discount prices

Ad Spending