University of Washington EMBA Program Marketing Management “Badvertising & Budgeting”...

University of Washington EMBA Program

Marketing Management

“Badvertising & Budgeting”(Promotions!)

Instructor: Elizabeth Stearns

United States of America 9,196,277

J apan 4,352,182

United Kingdom 1,453,980

France 1,450,341

China 1,024,874

Mexico 520,723

India 473,768

Korea, Republic of 428,682

Australia 416,718

Russian Federation 182,238

Indonesia 156,417

Norway 155,560

Poland 154,154

Venezuela 104,728

US $ Ad Spending 2002 = $96.1 billion Country GDP ($ millions)

“Perspective”

US $Ad Spending is ~ 1% of US GDP

US $ Ad Spending 2002 = $96.1 billion Country GDP ($ millions)

“Perspective”

Malaysia 81,879

Iraq 75,462

Congo 42,303

Kuwait 34,300

Guatemala 21,795

Uzbekistan 17,434

Sri Lanka 16,366

Kenya 11,054

Korea, Dem. People's Rep. 10,423

Trinidad and Tobago 5,957

Zimbabwe 4,960

Afghanistan 4,941

J amaica 3,985

Papua New Guinea 3,926

Haiti 3,504

Mozambique 2,627

Nicaragua 2,306

Saint Lucia 721

Grenada 294

Dominica 265

US $Ad Spending exceeds GDP of many countries.On this limited list, US $Ad Spending is greater than the total GDP of 15 countries!

Marketing Considerations

• Marketing Objectives (share, profit, growth…)• Product or Service

Availability(Intro/Mature/Market Leader)• BDI/CDI Index Review• Marketing Strategy(targeting and positioning)• Company advertising objectives and spending

trends

Brand Development Index (BDI)(Media Usage)

Market (1) % U.S. Population

(2) % Brand Sales

BDI (2 ÷ 1) * 100

A 10 11 110

B 15 15 100

C 20 18 90

D 25 30 120

E 30 26 87

Total 100 100 100 (Average)

Markets “C” & “E need support, “A”, “B”, and “D” seem OK

BDI Compared to CDI% Sales Index

(% Sales / % Population)

Index (BDI/CDI)

Market % Population

Category Brand Category Brand

A 10 12 11 120 110 92

B 15 15 15 100 100 100

C 20 16 18 80 90 113

D 25 30 30 120 120 100

E 30 27 26 90 87 96

Total 100 100 100

Consider possible different conclusions: Market “D” is only average,“C” & “E” probably don’t need support, “A” probably does.

Marketing Considerations

• Customer/target awareness/attitudes/usage

• Customer media habits

• Advertising Quality (Creative)

• Category size/competitive spending trends

• Seasonality/Regionality

• Other communications programs

Advertising Functions

• Informing

• Persuading

• Reminding

• Adding Value

• Assisting Other Company Efforts

Dryden Press, Inc

“Language”

• Introduce

• Create awareness (inform)

• Maintain/change/enhance attitudes

• Reinforce behavior

• Convince

Awareness

An Effort to Establish New Linkages in Consumer’s Minds

Attitude Change Strategies

1. To influence consumers’ brand-related beliefs

2. To influence existing evaluations

- getting consumers to reassess

3. To get consumers to add an entirely new outcome into existing beliefs

Overview of the Advertising Process

AdvertisingObjectives

AdvertisingBudget

Message(Creative)Strategy

MediaStrategy

MarketingStrategy

Harcourt, Inc

Situation Analysis

Marketing Objectives

Marketing Strategy

Action Plan

Situation AnalysisMarketing StrategyPromotional Strategy

Advertising objectives•Sales•Communications

Advertising Strategy•Creative Strategy•Media plan•Budget

MARKETING PLAN ADVERTISING PLAN

Elements of Advertising Plan

McGraw-Hill, Inc

Absolut’s Classic Advertising

What Makes Effective Advertising?

Sound

Strategy

Consumer’s

View Persuasive

Doesn’t

Overwhelm

Deliver on

Promises

Break

Clutter

Effective

Advertising

Energizer Batteries

Bud Light

• Spuds MacKenzie campaign

• Budfrogs

• Louie and Frank

• Consumers go to great lengths to get a Bud Light

Little Caesar’s (Example of Bad Advertising)

Advertising Strategy

An advertising message that

communicates the brand’s primary

benefits or how it can solve a

consumer’s problem

Advertising Plan

Provides the framework for systematic

execution of advertising strategies

Creating an Advertising Strategy/Plan

1. Specify the key fact.

2. State the marketing problem.

3. State the communications objective.

4. Implement the creative message strategy.

5. Establish mandatory corporate / divisional

requirements.

Step 1…

Key Fact:

A single-minded statement from the

customer’s points of view that identifies

why consumers are or are not

purchasing the brand

Step 2…

State the problem from

the marketer’s point of view

Step 3…

Communications Objective:

What effect the advertising is intended

to have on the target market and how it

should persuade consumers

Step 4…

Implement the creative message strategy:• Define the target market• Identify the primary competition• Choose the promise• Offer reasons why

Step 5…

Establish mandatory corporate/divisional requirements

• Relatively technical and uncreative• It reminds the advertiser to include the corporate

slogan or logo, any regulatory requirements and so on

Alternative Creative Strategies

• Generic

• Preemptive

• Unique Selling Proposition

• Brand Image

• Positioning

• Resonance

• Emotional

Unique Selling Proposition Example

• M & M candies– Melts in your mouth, not in your hands

Brand Image Example

Marlboro Man

Creating a Brand Image for Diet Coke

Brand Image

Alternative Creative Strategies: Positioning

• Product characteristics - Miller’s cold filtering• Price-quality relationship - Sears as family oriented• Use or application - IBM PCs for desktop

publishing• Product user - Busch as the working man’s beer • Product category - Domestic versus Foreign wines• Cultural symbols - Red, white, and blue• Competitor - Avis positioning as # 2

Positioning

Pork positions itself

as the healthy

choice

Bernbach’s Executional Emphasis

Lemon

Small

Ugly

Rear-engine powered

Foreign produced

Situation Analysis

Marketing Objectives

Marketing Strategy

Action Plan

Situation AnalysisMarketing StrategyPromotional Strategy

Media Objectives

Media Strategy

Media Vehicles

Media Schedule

Advertising objectives•Sales•Communications

Advertising Strategy•Creative Strategy•Media plan•Budget

MARKETING PLAN ADVERTISING PLAN MEDIA PLAN

Elements of Advertising Plan/Media

McGraw-Hill, Inc

Media is the throttle

• Media Objectives

• Media Strategies(Positioning/Targeting)

• Media Vehicles

• Planning (pulsing/continuity/flighting)

• Budgeting

Basic Concepts

• Reach and Frequency

• GRP’s/Impressions

• Planning & Buying

• Media Mix

• Efficiency and Effectiveness

• Measurement

• Testing

How do I craft my Media Objectives?

• Consider where you are going with your business objectives/Hierarchy of Effects/Communications Objectives, e.g.’s:

• Awareness = Reach• Reinforce = Frequency• Get people to buy more = Frequency• Attitude adjustments = Reach and Frequency• There are always elements of both, and minimums

(threshold levels) to attain effective levels.

Media VehiclesReach or Frequency?

• Reach:– Network Television– Cable Television – only a few CNN, TBS,

ESPN– National Radio– Horizontal Magazines – large circulation,

varied audiences (TV Guide, Readers Digest, Newsweek, Time, People)

– National Newspapers (USA Today, WSJ)

Media VehiclesReach or Frequency?

• Frequency– Spot Television

– Cable Television (used to fill in a Network Buy – usually more upscale)

– Spot Radio

– Vertical Magazines – select audiences, smaller circulation, run more frequently in them (Scientific American, Runners World, Tennis, Skiing, Inc)

– Local Newspapers

– Outdoor (passing by constantly – same road, same people)

Media VehiclesReach or Frequency?

• All vehicles are both!! An advertiser can build reach with a frequency vehicle and can increase frequency with a reach vehicle. However….

• Reach vehicles are typically more expensive in terms of out of pocket. (they reach more people).

• Frequency vehicles, while less expensive (even if you run a lot!) will never deliver all the target required! (inappropriate target/region)

• Therefore it is better to use media appropriate to the task - efficiency. And to fill in with other.

Media VehiclesReach or Frequency?

• Internet: that depends with whom you speak!• It is the ultimate Direct Marketing medium,

and as such evaluated differently.• Banner advertising on the internet is more a reach

vehicle. But its cost is still relatively low, and frequency is possible

• Email on the internet is more DM, and as sites are charging more for better targeting, creates more value for one-to-one capability

Media Planning

Involves the process of designing a

scheduling plan that shows how

advertising time and space will

contribute to the achievement of

marketing objectives

4. Buying media

The Media-Planning Process

1. Selecting the target audience

2. Specifying media objectives

3. Selecting media categories and

vehicles

Overview for the Media Planning Process

Advertising Strategy

Advertising

ObjectivesAdvertising

BudgetMessageStrategy

MediaStrategy

Media Strategy

• Audience Selection• Objective Specification• Media and Vehicle• Media Buying

Marketing Strategy

Alternative Media Plans*

Plan A: Plan B: Plan C: Plan D: TV (100%) Radio (33%) Magazines (50%) Outdoor

(33%)

Reach 69% 79% 91% 87%

(1+exposures)Effective Reach 29% 48% 53%

61%(3+exposures)

Frequency 2.8 5.5 3.2 6.7

GRP’s 193 435 291 583

ERP’s 81 264 170 409

Cost per GRP $62,176 $27,586 $41,237 $20,583Cost per ERP $148,148 $45,455 $70,588

$29,340

*Based on $12 Million annual budget and a 4-week media analysis

Continuity

How advertising is allocated during

the course of an advertising

campaign : how should the media

budget be distributed?

Continuity

• Continuous schedule

• Pulsing

• Flighting

• Shelf-Space model of advertising

Continuous, Pulsing, and Flighting Schedules

0

200

400

600

J F M A M J J A S O N D

Continuous Pulsing Flighting

Advertising Schedules

Ad

$ (

in t

ho

usa

nd

s)

(months)

Cost Considerations

The cost of reaching 1,000 members of

the target audience, excluding those

people who fall outside the target market

Cost considerations

Cost per Thousand (CPM)

Target Market (TM)

CPM= Cost of ad # of contacts (expressed in thousands)

CPM-TM= Cost of ad # of TM contacts

(expressed in thousands)

Cost Considerations

• Measures of cost efficiency, not of effectiveness

• Lack of comparability across media

• Misused unless vehicles within a particular medium are compared on the same basis

Budgeting

Advertising Budgeting in Theory• The best(optimal) level of any investment is the level that

maximizes profits(MR=MC)• Above a minimum threshold, the cost of advertising is less

than the additional revenues generated by it (MR>MC)• As you spend more on advertising, however, at some point

you reach saturation. If you spend any more, the revenues generated will be insufficient to justify the costs (MR<MC)

MC

= (Change in total cost) (Change in quantity)

= TC/Q

MR

= (Change in total Revenue) (Change in quantity)

= TR/Q

Budget Approaches

• Share of Voice(a.k.a Share of Advertising)

• Advertising to Sales Ratio (A/S)

• Share of Advertising to Share of Voice (SOA/SOM Index)

• Task and Objective

• Reality

Advertising to Sales Ratio (A/S)

• Criticized as illogical

– Assumes sales determine advertising expenditures; in reality, advertising expenditures determine sales

– Results in lower advertising spending during hard times, when increased advertising may prevent sales erosion

• A/S ratios less than 5% for most industries; vary considerably across firms within an industry

Advertising to Sales Ratio (A/S)• Examples of industries with high A/S ratios:

– Dolls & stuffed toys 14.9%– Watches & clocks 14.4%– Sugar & confectionery products 14.2%– Cleaners & polish preparations 13.1%– Games, toys, & children vehicles 12.8%– Distilled & blended liquor 11.9%– Books & publishing 11.7%– Wine & brandy 11.2%– Cutlery, hand tools, & general hardware 11.2%– Food products 10.5%– Agricultural chemicals 10.3%

Advertising Spending and Market ShareSOA/SOM

Adv $ SOA SOM Index Adv $ SOA SOM Index Adv $ SOA SOM Index

(Millions) % % SOA/SOM (Millions) % % SOA/SOM (Millions) % % SOA/SOM

Adidas $5 20 $6 21 $5 18

Saucony $6 15 $5 12 $8 14

Nike $10 22 $13 24 $14 25

New Balance $6 20 $7 21 $9 23

Reebok $7 8 $9 10 $10 12

All Other $6 15 $6 12 $4 8

Totals $40 100 $46 100 $50 100

2000 2001 2002

Advertising Spending and Market ShareSOA/SOM

Adv $ SOA SOM Index Adv $ SOA SOM Index Adv $ SOA SOM Index

(Millions) % % SOA/SOM (Millions) % % SOA/SOM (Millions) % % SOA/SOM

Adidas $5 12.5 20 $6 13 21 $5 10 18

Saucony $6 15 15 $5 11 12 $8 16 14

Nike $10 25 22 $13 28 24 $14 28 25

New Balance $6 15 20 $7 15 21 $9 18 23

Reebok $7 17.5 8 $9 20 10 $10 20 12

All Other $6 15 15 $6 13 12 $4 8 8

Totals $40 100 100 $46 100 100 $50 100 100

2000 2001 2002

Advertising Spending and Market ShareSOA/SOM

Adv $ SOA SOM Index Adv $ SOA SOM Index Adv $ SOA SOM Index

(Millions) % % SOA/SOM (Millions) % % SOA/SOM (Millions) % % SOA/SOM

Adidas $5 12.5 20 63 $6 13 21 62 $5 10 18 56

Saucony $6 15 15 100 $5 11 12 92 $8 16 14 114

Nike $10 25 22 114 $13 28 24 117 $14 28 25 112

New Balance $6 15 20 75 $7 15 21 71 $9 18 23 78

Reebok $7 17.5 8 219 $9 20 10 200 $10 20 12 167

All Other $6 15 15 100 $6 13 12 108 $4 8 8 100

Totals $40 100 100 $46 100 100 $50 100 100

2000 2001 2002

Advertising Spending and Market ShareSOA/SOM

Adv $ SOA SOM Index Adv $ SOA SOM Index Adv $ SOA SOM Index

(Millions) % % SOA/SOM (Millions) % % SOA/SOM (Millions) % % SOA/SOM

Adidas $5 20 $6 21 $5 18

Saucony $6 15 $5 12 $8 14

Nike $10 22 $13 24 $14 25

New Balance $6 20 $7 21 $9 23

Reebok $7 8 $9 10 $10 12

All Other $6 15 $6 12 $4 8

Totals $40 100 $46 100 $50 100

2000 2001 2002

Advertising Spending and Market ShareSOA/SOM

Adv $ SOA SOM Index Adv $ SOA SOM Index Adv $ SOA SOM Index

(Millions) % % SOA/SOM (Millions) % % SOA/SOM (Millions) % % SOA/SOM

Adidas $5 12.5 20 $6 13 21 $5 10 18

Saucony $6 15 15 $5 11 12 $8 16 14

Nike $10 25 22 $13 28 24 $14 28 25

New Balance $6 15 20 $7 15 21 $9 18 23

Reebok $7 17.5 8 $9 20 10 $10 20 12

All Other $6 15 15 $6 13 12 $4 8 8

Totals $40 100 100 $46 100 100 $50 100 100

2000 2001 2002

Advertising Spending and Market ShareSOA/SOM

Adv $ SOA SOM Index Adv $ SOA SOM Index Adv $ SOA SOM Index

(Millions) % % SOA/SOM (Millions) % % SOA/SOM (Millions) % % SOA/SOM

Adidas $5 12.5 20 63 $6 13 21 62 $5 10 18 56

Saucony $6 15 15 100 $5 11 12 92 $8 16 14 114

Nike $10 25 22 114 $13 28 24 117 $14 28 25 112

New Balance $6 15 20 75 $7 15 21 71 $9 18 23 78

Reebok $7 17.5 8 219 $9 20 10 200 $10 20 12 167

All Other $6 15 15 100 $6 13 12 108 $4 8 8 100

Totals $40 100 100 $46 100 100 $50 100 100

2000 2001 2002

1980 1981 1982Adv $ (mill.)

SOA (%)

SOM (%)

Index (SOA/SOM)

Adv$ (mill.)

SOA (%) SOM (%) Index (SOA/SOM)

Adv$ (mill.)

SOA (%) SOM (%)

Index (SOA/SOM)

Suave 3 3 5.8 52 4 3.5 6 58 6 5.5 9.4 59

Agree 5 4.1 7.1 58 6 5.3 3.4 156 4 3.5 2.7 130

Flex 5 4.2 7.1 59 4 3.3 6.8 49 3 2.6 6.6 39

Head & Shoulders

20 17.5 18.3 96 21 18.3 11.6 158 17 17.1 9.5 180

Jhirmack 3 2.4 6 4.8 4 4.2

Pert 21 18.3 3.4 538 17 14.6 5.6 261 10 9.5 4.5 211

Prell 14 11.8 7.3 162 12 10.3 5.7 181 10 10.3 5.8 178

Silkience 9 7.7 2.1 367 11 9.2 4.3 214 6 5.7 3.3 173

Vidal Sassoon

10 8.4 3.3 255 10 8.8 4.6 191 11 11.1 4.2 264

All Other 26 22.6 45.6 50 26 22 52 42 31 30.5 54 56

Total 115 100 100 100 117 100 100 100 100 100 100 100

SOA/SOM Analysis for Suave

1982 1983 1984Adv $ (mill.)

SOA (%)

SOM (%)

Index (SOA/SOM)

Adv$ (mill.)

SOA (%) SOM (%) Index (SOA/SOM)

Adv$ (mill.)

SOA (%) SOM (%)

Index (SOA/SOM)

Suave 6 5.5 9.4 59 6 5.1 9 57

Agree 4 3.5 2.7 130 6 4.7 2.2 214

Flex 3 2.6 6.6 39 4 3 6.4 47

Head & Shoulders

17 17.1 9.5 180 17 14.3 9.1 157

Jhirmack 4 4.2 9 8 3.4 235

Pert 10 9.5 4.5 211 9 8 3.6 222

Prell 10 10.3 5.8 178 16 13.6 5.6 243

Silkience 6 5.7 3.3 173 5 4.4 2.6 169

Vidal Sassoon

11 11.1 4.2 264 14 11.5 4.4 261

White Rain

5 New Brands

44.5

All Other 31 30.5 54 56 32 27.4 53.7 51

Total 100 100 100 100 118 100 100 100 145

SOA/SOM Analysis for Suave

Task and Objective Method1. Establish specific marketing objectives that need to be

accomplished2. Assess the communication functions that must be

performed to accomplish the overall marketing objectives3. Determine advertising’s role in the total communication

mix in performing the functions established in step 2.4. Establish specific advertising goals in terms of the levels

of measurable communication response required to achieve marketing objectives.

5. Establish the budget based on estimates of expenditures required to accomplish the advertising goals.

Task and Objective Method: Volkswagen Example

1. Marketing objectives: Increase sales of Golfs and Jettas from 21,000 to 250,000

2. Communication functions: Increase awareness of Golf and Jetta brand names, establish an image as a company that offers “honest, reliable, affordable” cars.

3. Advertising will be a crucial component in Volkswagen’s communication mix.

4. Advertising goals: 1. Increase awareness of Jetta from 45% to 75% of target market. 2. Expand percentage of respondents who rate VW’s products as high quality from 15% to 40%.

5. Budget: ~$100 million

Thank You!