budget final
TRANSCRIPT
Establishing Objectives and Budgeting for the Promotional
Program
Establishing Objectives and Budgeting for the Promotional
Program
The Promotional Budget
• Establishing the budget
• Allocating the budget (budgeting approaches)
Balancing Objectives and Budgets
Dollars Goals
What we’re willing and
able to spend
What we need to achieve our
objectives
Establishing the budget
• Marginal Analysis
• Sales response models
• Additional factors in budget setting
Marginal Analysis
Advertising / Promotion
Sa
les
Point A
Profit
Sales Gross Margin
Ad. Expenditure
BASIC Principles of Marginal Analysis
IncreaseIncrease Spending . . . IF:The increased cost is less than the incremental (marginal) return.
DecreaseDecrease Spending . . . IF:The increased cost is more than the incremental (marginal) return.
HoldHold Spending Level. . . IF:The increased cost is equal to the incremental (marginal) return.
Problems with Marginal Analysis
• Assumption that sales are a direct measure of advertising and promotional efforts.
• Assumption that sales are determined solely by advertising and promotion.
Advertising Sales/Response FunctionsIn
crem
enta
l S
ale
s
Advertising Expenditures
A. Concave-Downward Response Curve
Incr
em
enta
l S
ale
s
Advertising Expenditures
Range A Range B Range C
B. S-Shaped Response Function
Hig
h S
pendin
gLi
ttle
Eff
ect
Init
ial Sp
endin
gLi
ttle
Eff
ect
Mid
dle
Level
Hig
h E
ffect
Allocating the Budget
• Top-down budgeting
• Bottom-up budgeting
Top Management Sets the
Spending Limit
The Promotion Budget Is Set to Stay Within the Spending Limit
Top-Down Budgeting
Top-Down Budgeting
• Arbitrary allocation
• The affordable method
• Percentage of Sales
• Competitive parity
• Return on investment (ROI)
The Affordable Method
• It is common among small firms and certain non-marketing-driven large firms.
• Logic: We can’t be hurt with this method.
• Weakness: often does not allocate enough money.
Percentage of Sales
• Sales dollar or unit product cost
• Future or past
• Pros– Financially safe– Reasonable limits– Stable
Percentage of Sales
• Cons– Reverse the cause-and-effect relationship
between advertising and sales.– Stability– Misallocation– Difficult to employ for new product
introductions.– Sales↓ → Advertising budget↓
Competitive Parity Method
• Pros– Take advantage of the collective wisdom of
the industry
• Cons– Prisoners’ dilemma
Bottom-Up Budgeting
Total Budget Is Approved byTop Management
Cost of Activities are Budgeted
Activities to Achieve ObjectivesAre Planned
Promotional Objectives Are Set
Bottom-Up Budgeting
• Objective and Task Method
• Payout Planning
• Quantitative Models
Objective and Task Method
• Three steps:– Defining the communications objectives to be
accomplished– Determining the specific strategies and tasks
need to attain them– Estimating the cost associated with
performance of these strategies and tasks
Objective and Task Method
Establish Objectives(create awareness of new product among 20 percent of target market)
Establish Objectives(create awareness of new product among 20 percent of target market)
Determine Specific Tasks(advertise on market area television and radio and local newspapers)
Determine Specific Tasks(advertise on market area television and radio and local newspapers)
Estimate Costs Associated with Tasks(television - 575,000; radio - 225,000; newspaper -175,000)
Estimate Costs Associated with Tasks(television - 575,000; radio - 225,000; newspaper -175,000)
Are There Economies of Scale?
No evidence to support this!No evidence to support this!
No evidence to support this!No evidence to support this!
No evidence to support this!No evidence to support this!
Proposition ILarger firms can support their brands with lower relativeadvertising costs than smaller firms.
Proposition IIThe leading brand in a product group enjoys lower advertising costs per sales dollar than do other brands.
Proposition IIIThere is a static relationship between advertising costs per dollar of sales and the size of the advertiser.
Payout Planning
To determine how much to spend, marketers develop a payoutpayout planplan that determines the investment value of the advertising and promotion appropriation
Example of a three-year payout plan (millions)
Year 1 Year 2 Year 3Product sales 15.0 35.50 60.75Profit contribution(5.50 per case) 7.5 17.75 30.38Advertising/promotions 15.0 10.50 8.50Profit (loss) (7.5) 7.25 21.88Cumulative profit (loss) (7.5) (0.25) 21.63
Ad Spending and Share of Voice
Decrease–find a Defensible NicheDecrease–find a Defensible Niche Increase to DefendIncrease to Defend
Attack With Large SOV Premium
Attack With Large SOV Premium
Maintain Modest Spending Premium
Maintain Modest Spending PremiumC
om
peti
tor’
sS
hare
of
Voic
e
Hig
hLo
w
HighLowYour Share of Market
The Advertising Budget
Setting the Budget• Percentage of Sales• Payout Plan• Competitive Budgeting• The Task or Objective Method
– What’s the objective?– What type and how much media needed?– Can we afford it?
• Arbitrary
Administering and Protecting the Budget
Media Defined
• The vehicles that carry the ads to the target market.
• Which is most important? Picking the correct media or having great creative?
• What are the types of media?
Examples of Nontraditional Media
ABC Inflight AirplanesActMedia SupermarketsAislevision SupermarketsAladdin’s Castle MallsBeyond the Wall College postersChannel One High schoolsCineSpot CinemasCNN Airport Network AirportsCover Concepts Book Covers High schoolsGo Cards Health clubs, restaurantsInstant Coupon Machine SupermarketsMilitary MediaBoards Military basesMiller Airship BlimpsResort Sports Network ResortsRoadmark Fleet Advertising TrucksScreenvision CinemasU College newspapers
Sample of a Syndicated Media List
MAGAZINES RADIO NETWORK TV CABLE NETWORKSAllure Adult Contemporary American Gladiators Arts &
EntertainmentAmerican Baby All News America’s Funniest.. American Movie
ClassicsAmerican Health All Sports America’s Most… Black Entertainment TVAmerican Hunter AOR/Progressive Rock Baywatch The BoxAmerican Legion Black Beverly Hills 90210 Bravo * * * * * * * *Working Woman Religious/Gospel Washington Week… TV Food NetworkWWF Magazine Soft Contemporary Wild America USA NetworkYachting Spanish Wings VH-1Yankee Urban Contemporary WKRP in Cincinnati The Weather ChannelYM Variety The X-Files WGN-TV
Source: Mediamark Research, Inc., Spring 1995.
Organization of the Media Function
• Media planner
• Media buyer
• Media researcher
Important Trends in Media
• Convergence
• Interactivity
• Creativity
• Optimization
Key Media TermsMedia plan: document that establishes how media
will be used to disseminate an advertiser’s message, including objectives and strategy.
Media objective: statement in media plan that explains the goals of the plan; usually states how many of the target will be exposed to advertising messages in a given time period, and how often.
Media strategy: statement in media plan that outlines how objectives will be accomplished; shows where and when advertising messages will appear, and at what cost.
Media Planning
Media Planning = Selection + SchedulingFactors Influencing Media Planning DecisionsTarget Market ProfileLooking at Brand/Product DynamicsThe Creative ExecutionBudget Considerations and Media DealsThe Competitive SituationAvailability and Timing ConsiderationsCost Efficiency (CPM = Cost per thousand (CPM): cost
of reaching 1,000 members of target audience with media vehicle(s) or plan.)
CPM Formula and Example
CPM = Cost
AudienceX 1,000
A-- :30 TV Commercial in “Friends”
Which is more cost efficient on a CPM basis?
CPM = Rs. 250,000
20,000,000X 1,000 = Rs. 12.50
B-- :30 TV Commercial in “News”
CPM = Rs 300,000
30,000,000X 1,000 = Rs. 10.00
Media Selection
• Media are evaluated based on selectivity.• There are two types of selectivity:
– Class Selectivity is the ability of a medium to reach the target market without waste.
– Geographic Selectivity is the ability of a medium to cover a particular geographic area without spillover.
• How would you rate the different major media in terms of class and geographic selectivity?
Media Scheduling
Reach(% of target audience with opportunity for exposure to media
vehicle(s) or media plan in a given time frame)
+
Frequency(average number of times target is likely to be exposed to the
ad in a given time frame)
100%
The Difference between Reach and Frequency
Media Scheduling (continued)
Reach+
Frequency
+Continuity
(how long the campaign runs—continuous vs. flighting vs. pulsation)
100%
Reach, Frequency, and Continuity Relationships with a Fixed Budget
Media Scheduling (continued)
Reach+
Frequency
+Continuity
+Dominance/Impact
(the attention-getting ability of the media vehicle(s) selected to run the ad)
100%
Evaluating the Media: Key Terms
Rating point: the % of a given population group that uses a specified media vehicle.
Share: Households/persons using television (HUT, PUT): % of homes or people watching TV at a given time.
Gross rating point (GRP): total number of ratings for different media vehicles.
Gross impression: translation of GRPs into people; number of audience exposures x number of times they will see or hear vehicles.
Cost per rating point (CPP): cost of buying one rating point in a given media vehicle or type.
Audience: number or % of homes or persons using a media vehicle.
Coverage: Same as reach – the % of homes or persons receiving broadcast signal within specified area, or receiving specific magazine or newspaper.
Evaluating the Media: Key Terms, Continued
Circulation: Total number of copies of a publication sold through various forms of distribution.
Readers per copy: average number of people who read each issue of publication.
Types of Media Plans
Geographic Local, spot, key market Regional National International
Selective Combination
Sample Flowchart of a Media Plan
Evaluating the Media Plan
Follow up—getting make-goods, tearsheets. Measuring the impact:
Test consumer awareness of campaign before, during, and after.
Sales data.Compare actual reach/frequency figures to
proposed estimates.
Syndicated Media Research ServicesNielson, Arbitron, Simmons, Audit Bureau of
Circulation