Communication and Advertising Budget

Framework of Advertising Planning & Decision Making

Situation Analysis

Marketing Programme

Integrated Mar. Com. Plan

Advertising Plan

Implementation

Process starts with an analysis of the Brand’s external & internal environment

Situation Analysis

(external and internal)

Marketing Programme

Market analysis

Competitor analysis

Brand Analysis- SWOT

Advertising Plan

Implementation

The Role of Advertising emerges from the Marketing Programme

Situation Analysis

Marketing Programme

Determines the role of each elements of the marketing mix including Marketing Communications

Indicates how all elements will be coordinated to support and synergise with each other

IMC & Advertising plan

Implementation

The Advertising Plan Includes…

Situation Analysis

Marketing Programme

IMC & Advertising Plan

Setting Objectives - (Segmentation-positioning)

Media – strategy & tactics

Message – strategy & tactics

Implementation

Implementation and Coordination (synergy with other IMC tools)

Framework of Advertising & Decision Making

Situation Analysis

Marketing Programme

IMC /Advertising Plan

Implementation

Facilitating Agencies

Social, legal & other constraints

The Role of Advertising….

The role the Advertising plan can only be in the context of the Marketing Plan

– The Advertising Plan must support and synergise with:• the elements of the Marketing Mix• and other elements of the Communication Mix

Need to understand ‘How Advertising Works’to appreciate the role it plays

How does Advertising work ?

Advertising is ‘persuasive communication’

ThePersuasion Process ofAdvertisingis througha variety

of advertising

effects

Awareness/familiarity

Brand Benefit / InformationCreating image / personality

Associating feelings with Brand

Linkage of Brand with peers/experts/group norms /culture

Reminder / Brand trial inducement

BrandAttitude

PurchaseBehavior

The Persuasion Process of Advertising

Setting Advertising Objectives

These must be Operational Objectives

Meaningful Advertising Objectives• Provide criteria for decision making• Serve as a communication and coordination tool• Provide criteria for evaluate performance

Can ‘Sales’ be meaningful Objectives?

‘Sales’- A Meaningful Advertising Objective??

Difficult to identify the impact of Advtg.on ‘Sales’– ‘Advtg. impact is felt over time – Isolating ad impact from other elements of the marketing

mix is difficult New customersAdvertising Immediate Sales Future

sales Change attitude / improve image

Developing Advertising Objectives Involves 3 considerations -

– Behavioral decisions (behavioral objectives) that Advertising must influence

– The Target Segment – The decision making process that

communication must precede to influence behavior

‘Sales Strategy’ the basis for Advertising Objectives

Sales growth comes from -• New customers buying• Old customers staying loyal• Old customers consuming more

Demand Generation - Offensive StrategyMarket dynamics:

- Sales grow because of new customers buying

‘Offensive Marketing Strategies’• Primary demand generation• Secondary demand generation

Those not the buying product

Existing customers

Those buyingOther brands

Demand Generation - Defensive StrategyMarket dynamics:

– Sale grow with old customers staying loyal‘Defensive Marketing Strategy’

• Recall the important brand features• Reinforce use experience• Consumer promotions

Demand Generation through Increased Consumption

Market dynamics:

Sales grow with ‘Product form expansion’ • More frequent usage / share of requirement (SOR)• New use applications

Secondary Demand-New customers using other brands

Primary Demand - Customers trying the category for the first time

Existing customers Loyalty

More consumption news uses and more usage

Behavioral Responses that drive Purchase

Marketing / Sales Strategies & Behavioral Objectives

Trial Purchase

Trial Purchase

Loyalty

Increased usage / SOR

The Influence of Advertising on Desired Behavior

Advertising is not as effective in directly evoking desired action -‘Purchase’

Advertising causal intervening response

desired behavioral response Sales

Sales Promotions, DM & Retail Advertising should be used in conjunction with Advertising to drive sales

Advertising Objectives (the Intervening Response Variables that are persuasive in its context) are determined by the type of Sales Strategy and Behavioral Objectives

Advertising Objectives Reflect the Target Segment

The segment and sub-segment can be defined by –

• Behavioral measures – non-users, other brand users, heavy /

light / loyal users etc.

• Advertising response measures – unaware, not convinced of

key benefit, diffused / sharp image, etc

• Lifestyle - attitude & opinions, interests

• Benefits sought

• Demographic, psychographics, geographic basis - more

relevant for media decisions

Communication Objective

Communication effect Pyramid

5% Repurchase/regular use

10% trail

20% Preference

40% Liking

60% knowledge/Comprehension

80% Awareness

Behavioral Objectives for five target groups

Trail ObjectivesNew category users

Other brand loyal

Other brand switchers

Favorable brand switchers

Brand loyal

Category trail Yes

Brand trail Yes Yes Yes

Brand re trail Yes Yes

Repeat purchase objectives

Maintain repeat purchase rate

Yes

Increase repeat purchase rate

Yes Yes Yes

Buy more per occasion

Yes Yes

Accelerate timing

Decrease the interval

purchase interval

Yes yes

DAGMAR Approach

• Russell H. Colley (1961) prepared a report for the Association of National Advertisers titled Defining Advertising goals for measured advertising Results (DAGMAR). He developed this model for setting advertising objectives and measuring the results of an ad campaign

• According to colley advertising means– Advertising job, purely and simply, is to

communicate to a defined audience information and a frame of mind that stimulates action. Advertising succeeds or fails depending on how well it communicates the desired information and attitudes to the right people at the right time and at the right cost.

‘Hierarchy of Effects’ Model - DAGMAR Unaware

Aware

Comprehension & image

Attitude

Action

Cognitive

Affective

Behavioral

DAGMAR Approach – A communication task to be accomplished amongst a defined audience, in a specified period of time. Advertising objective involve a comm. Task that is

specified and measurable

• Awareness: involves making target audience aware of the existence of brand or company.

• Comprehension: the purpose is to develop an understanding among audience of what the product is and what it would do for them

• Conviction: the objective is to create a mental disposition among target audience members to buy the product

• Action: to motivate the target audience to purchase the product or service.

DAGMAR in PracticeObjectives to ensure the sated goals contain the

crucial aspects of DAGMAR

– A specific task indicated clearly – to be measurable

– A starting point set –Benchmark against which goal

achievement can be measured

– A Target Segment specified precisely

– The Time Period for achieving the desired response

indicated

DAGMAR in Practice

Challenges to DAGMAR• Does not measure Sales

• Broad outline does not give enough details (which

hierarchical level)

• Measurement is a problem

• System noise – other factors affecting goal

• Model may not hold good in every situation

Advertising affects on consumer

Behavioral dimensions Steps towards purchase Advertising for various stages

Conative The realm of motives ads stimulates or directs desires

Purchase

Conviction

POP advertising, testimonials, price/quality appeals

Affective The realm of emotions, attitudes and feelings

Preference

Liking

Comparative adsArgumentative copy

Image, status, glamour appeals

Cognitive The realm of thoughts

Knowledge

awareness

Descriptive copy, slogans, jingles etc.

Ad. Repetition, teaser ads.

Other Persuasion Models

AIDA Hierarchy Innovation of Effects Adoption

AttentionAwareness

KnowledgeAwareness

Interest

Desire

Liking

Preference

Conviction

Interest

Evaluation

CognitiveStage

AffectiveStage

ActionStage Action Purchase

Trial

Adoption

Advertising Budget

• The term 'advertising budget' in essence is nothing but planning the advertising expenditure.

• Advertising money before spending, it is necessary to ensure its proper investment.

• Every ad is a long term investment in the personality of a brand. Therefore, when advertising is recognized as a type of future investment, care must be taken today to make it more effective with proper planning of advertising budget.

IMPORTANCE OF ADVERTISING BUDGET

• Check on advertising expenditure

• Approval from top management

• Balanced focus

• Facilitates planned execution

• Provides direction for drafting of Ads

• Selection of media

Establishing the budget• The size of the firm’s advertising and promotions budget can

vary from a few thousand dollar to more than a billion. When companies like Procter & Gamble and General Motors spend over a billion dollar per year to promote their products.

• Unfortunately, many managers fail to realize the value of advertising and promotion. They treat the communications budget as an expense rather than an investment. When times get tough, the advertising and promotional budget is the first to be cut.

• Moreover, the decision is not a one-time responsibility. A new budget is formulated every year, each time a new product is introduced or when either internal or external factors necessitate a change to maintain competitiveness.

Models used to establish advertising budgets

Marginal Analysis • The concept of marginal analysis explained that as advertising/

promotional expenditures increase, sales and gross margins also increases to a point, but then they level off.

• Profits are shown to be a result of the gross margin minus advertising expenditures. Using this theory to establish its budget, a firm would continue to spend advertising/promotional money as long as the marginal revenue created by these expenditure exceeded the incremental advertising/promotional cost.

• While marginal analysis seems logical intuitively, certain weaknesses limit its usefulness. These weaknesses include the assumptions :-

• Sales are a direct measures of advertising and promotions efforts.• Sales are determined solely by advertising and promotion.

SALES RESPONSE MODELS

• Almost all advertiser subscribe to one of two models of the advertising /sales response function:

• the concave-downward function or • the S-shaped response curve.

The concave-downward function

• In this advertising budget follow the law of diminishing returns. That is as the amount of advertisement increases, its incremental value decreases. This means that those with the great potential to buy will buy in the first exposure, while those who are less likely to buy are not likely to change as a result of advertising even each additional adv. will supply little or no new information that will affect their decision

The S-shaped response function

• S-shaped response function to the budget outlay. Initial outlays of the advertising budget have little impact( as indicated by the essentially flat sales curve in range A). After a certain budget level has been reached ( the beginning of range B), advertising and promotional efforts begin to have an effect, as additional increment of expenditures result in increased sales. This incremental gain continues only to the point, however, because at the beginning of the range C additional expenditure begin to return little or nothing in the way of sales. This model suggest a small advertising budget is likely to have no impact beyond the sales that may have been generated through other means( for example, word of mouth).

ADVERTISING BUDGET PROCESS• Since advertising is an investment, it should be budgeted like any

other investment. The preparation of an advertising budget generally determines the size of advertising expenditure. How much should be spent on advertising? To determine this is the purpose of the advertising budget.

• A “budget” is a forward plan of any activity expressed in terms of

rupees, and budgeting is the process of this planning. Therefore, the advertising budget is the amount of the proposed advertising expenditure and its apportionment on the various advertising activities of the company. The advertising budget thus serves as a decision-making tool for the top management, in addition to its control function of such expenses.

• The advertising budget is prepared by the advertising manager of the company. However, ad agencies do help him in this planning work. Logically, the starting point of any advertising budget process is the determination of the size of advertising appropriation. Once the total expenditure is arrived at, the next step is the apportionment of this fund among various advertising units over a period.

• During the execution of the budget, the advertising manager has to exercise monitoring control so that the funds that have been allocated may be spent in most economical manner.

Budgeting Approaches

• After having a clear understanding of what an advertising budget is, let us discuss the various methods of framing the advertising budget. There are no scientific methods which can be employed in determining the amount of the advertising fund to be spent during the year. However, here are a few approaches, which may serve as guides to advertising appropriation decision.

There are two types of approaches

• Top down approaches• Bottom up approaches• TOP DOWN APPROACHES- Budgeting approaches in which

the budgetary amount is established at the executive level and monies are passed down to the various department. These budgets are essentially predetermine and have no true theoretical basis top down basis .

• These budgets are essential y predetermined and have no true theoretical basis. Top-down methods include the affordable method, arbitrary allocation, percentage of sales, competitive parity, and return on investment.

• Bottom up approach- A method of determining the budget for advertising and promotion by determining the specific task that have to be performed and estimating the cost of performing them. A more effective budgeting strategy would be to consider the firm's communications objectives and budget what is deemed necessary to attain these goal.

METHODS OF TOP DOWN APPROACH

• Percentage-of-sales method

• All you can afford

• Arbitrary method

• Competitive parity method

• Return of investment

Percentage-of-sales method• In the percentage-of-sales method, advertisers use one of

the two things in arriving at how much to be spent on advertising. The first one is to select a factor or multiplier, such as 3, 5 or 7 per cent, then multiply this by the sales figures in rupees, and the sum so arrived at is the answer to the question of how much to spend. For example, if the sales are worth Rs. 300 lakhs, taking 3 per cent of this, the advertiser should spend about Rs. 9 lakhs on advertising. By this method, the advertisers determine how much of their sales rupees should be spent on advertising. The sales figure in the above calculation may be based on past sales or expected future sales for the time period for which the advertising appropriation is determined. Either gross or net sales figures can be used.

• The other method of determining the advertising funds to be spent, depends upon the number of machines sold or units of product sold. For example, an automobile firm selling 500 cars a year will decide to spend Rs. 200 for each car sold as advertising expenses. Thus, a total of Rs. One lakh will be the advertising budget. The number of cars sold may be determined on the basis of immediate past sales or the expected future sales.

• The best way is to start with the most appropriate percentage figure bases on an individual's estimate, the industry's average and the competitors' figure, and then improve it in the light of experience gained over a period of time. The percentage figure varies widely from as low as one per cent in mining companies to as high as 40 per cent in the pharmaceutical and cosmetic companies.

• Advantage of Percentage of sales-• It is financially safe • keeps ad spending within reasonable limits• This method is simple, straightforward• Easy to implement• Disadvantage of Percentage of sales-• Percentage of sales method is also difficult to employ for new

product introduction. • If the budget is contingent on sales, decreases in sales will

leave to decrease in budget when they most need to be increased. Continuing to cut the advertising and promotion budget may just add impetus to the downward sales trend.

All You Can Afford

• The what-can-be-afforded method is yet another decision rule on which many firms base their advertising budgets, particularly firms with limited resources. When fund availability is a constraint, a limited fund is only allocated after other unavoidable expenditures have been met. The rule is also based on the premise that sales are independent of advertising expenditure _ an assumption which is not well founded. The method, moreover, suffers from an inherent shortcoming _ that budget decisions are left to the whim of the management and are not based on rational business needs. Whims are mostly irrational and subjective rather than based on an objective approach.

ARBITRARY METHOD• A variation of the what-can-be-afforded method is

yet another subjective method, by which the budget is arbitrarily set without any rationality and analysis of the task of advertising. This is referred to as the arbitrary method Some advertisers decide that they will spend 'X' rupees on advertising next year. They claim that, because of their first hand knowledge of business, they have acquired a sort of "gut feeling" about how much advertising expenses would be appropriate. This is a "human" method.

COMPETITIVE PARITY METHOD• A method of setting the advertising and promotion budget based on matching

the absolute level of percentage of sales expenditure of the competition.• The competitive parity method has a number of disadvantages, • It ignores the fact that advertising and promotional are designed to accomplish

specific objectives by addressing certain problems and opportunities. • It assumes that because firms have similar expenditures, their programs will be

equally effective.• There is no guarantee that competitors will continue to pursue their existing

strategies.• Finally, competitive parity may not avoid promotional wars Coke versus Pepsi and

Anheuser-Busch versus Miller have been notorious for their spending wars, each responding to the other's increased outlays.

RETURN OF INVESTMENT

• A budgeting method in which advertising and promotion are considered investments and thus measurement are made in an attempt to determine the returns achieved by these investment.ROI budgeting method, advertising and promotions are considered investments, like plant and equipment.

• While the ROI method looks good on paper, the reality is that it is rarely possible to assess the returns provided by the promotional effort-at least as long as sales continue to be basis for evaluation. ROI remains a virtually unused method of budgeting.

METHODS OF BOTTOM UP APPROACH

• OBJECTIVE TASK METHOD-• The objective-and-task approach to advertising budget is

based on establishing advertising objectives and the tasks to be accomplished, and then determining the required size of the budget. For example, a company decides to increase the awareness of its brand in a certain market segment to 50 per cent. The required tasks to achieve this awareness are detailed, and a suitable campaign programme is chalked out. The cost of doing so, or, in other words, the cost of achieving the requisite exposure, will be the advertising budget.

• The “objectives" are the advertiser's long-term marketing aims, whereas "task" is a short-term undertaking, usually the next year's sales goals.

• The definition of the term task and the determining of the advertising programme should be further elaborated, for they form the most critical steps in the method. No doubt, the primary purpose of advertising is to improve the sales of the company; but besides this, advertising is required to perform some non-selling tasks. Immediate sales may not always be the goals.

Few typical examples of the tasks to be performed by advertising campaigns:

1. To increase an awareness of a product and its promotion; 2. To develop the long-term selling theme - quality product,

newness, customer service; 3. To acquaint the market with the brand name; 4. To overcome expected consumer objection to the use of

the product;5. To introduce a new product; 6. To secure the required distribution through wholesalers

and retailers.

• The major advantage of the objective and task method is that the budget is driven by the objectives to be attained. The managers closest to the marketing effort will have specific strategies and input into the budget-setting process.

• The major disadvantage of this method is the difficulty of determining which till be required and the costs associated with each. For example, specifically what tasks are needed to attain awareness among percent of the target market?

Pay out planning

• It is use full when new products are introduced.• It is used in conjunction with other budgeting

methods to estimate the investment value of advertising.

• The commitment is to invest heavily in advertising to achieve increased awareness and product acceptance.

• The basic idea is to develop a projection of revenues the product will generate, and the costs it will incur over a period of two or three years.

Quantitative models

• Regression models etc.

Experimental approach

• It is an alternative to using statistical approaches and mathematical models.

• Test and experiments are done in one or more selected market areas.

• The purpose is to determine the impact of input variations that might be used.

• The feedback data of this experiment is used to determine the ad. Budget.