Chapter Six Marcom Objective Setting and Budgeting

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2007 Thomson South-Western

Setting Marcom Objectives

Goals that the various marcom elements aspire to individually or collectively achieve during a scope of time such as a business quarter or fiscal year.

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Some Marcom Goals • Facilitate the successful introduction of new brands.

• Build sales of existing brands by increasing the frequency of use, the variety of use, or the quantity purchased. • Inform the trade and consumers about brand improvements. 3

Marcom Goals

• Create brand awareness • Enhance a brand’s image • Generate sales leads • Persuade the trade to handle the manufacturer’s brands • Stimulate point-of-purchase sales • Increase customer loyalty 4

Marcom Goals

• Improve corporate relations with special interest groups • Offset bad publicity about a brand or generate good publicity • Counter competitors’ communication efforts • Provide customers with reasons for buying immediately instead of delaying a purchase 5

Why Set Marcom Objectives

• Expression of management consensus • Guides the budgeting, message, and media aspects of advertising strategy • Provide standards against which results can be measured 6

The Hierarchy of Marcom Effects  The

hierarchy of effects

metaphor implies that for marketing communications to be successful it must move consumers from one goal to the next goal.

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Requirements for Setting Suitable Marcom Objectives 8

Should Marcom Objectives Be Stated in Terms of Sales? Presales Objectives: communication objectives that attempt to increase the target audience’s brand awareness, enhance their attitudes toward the brand, shift their preferences from the competitors’ brand and so on. Sales Objectives: means the marcom objective literally is to increase sales by a particular amount.

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Should Marcom Objectives Be Stated in Terms of Sales?

Traditional View (Thesis)

• • •

Sales volume is the consequence of a host of factors in addition to marcom Effect of marcom efforts is delayed Problem:

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Sales Volume as a Marcom Objective • • •

Heretical View (Antithesis) Marcom’s purpose is to generate sales Sales measures are “vaguely right” Problem:

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An Accountability Perspective (Synthesis) • Chief executives and financial officers are demanding greater

accountability

from marcom programs. • The measurement of effects of a program should not stop short of measuring the effect on sales. 12

Marcom Budgeting in Theory

• The best(optimal) level of any investment is the level that maximizes profits(MR=MC) • Advertisers should continue to increase their advertising investment as long as it is profitable to do so – Every additional dollar spent on MARCOM brings in more than a dollar in revenue (MR>MC), it is profitable to continue MARCOM spending.

– If the additional dollar spent on MARCOM brings in less than a dollar in revenue (MR

– Thus profits are maximized when MR = MC 13

Sales-to-Advertising Response Function The relationship between money invested in advertising and the response, or output, of that investment in terms of revenue generated. 14

An Example of a Sales-to Advertising Response Function 15

Practical Budgeting Methods

• Percent-of-Sales Budgeting • Objective-and-Task Method • Competitive Parity Method (match competitors’ method) • Affordability Method 16

Percentage-of-Sales Budgeting

• A company sets a brand’s advertising budget by simply establishing the budget as a fixed percentage of past or anticipated sales volume • Criticized as being illogical Sales=

f

(Advertising) (o) Advertising=

f

(Sales) (x) • During recession?

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Objective-and-Task Method

• The most sensible and defendable advertising budgeting method • Specify what role they expect advertising to play for a brand and then set the budget accordingly • Build upwards by costing activities 18

The Competitive Parity Method

• Sets the ad budget by basically following what competitors are doing • SOM- (share of market) the ratio of one brand’s revenue to total category revenue • SOV- (share of voice) the ratio of a brand’s advertising expenditures to total category advertising expenditures 19

Advertising Spend, SOV, and SOM for Top-10 Wireless Phone Brands 20

Advertising Spend, SOV, and SOM for Top-10 Beer Brands 21

The SOV/SOM Effect and Ad Spending Implications 22

Affordability Method

• Only the funds that remain after budgeting for everything else are spent on advertising • Only the most unsophisticated and impoverished firms • However, affordability and competitive considerations influence the budgeting decisions of all companies 23