Wednesday, 7 November 2012

Establishing Objectives and Budgeting for the Promotional Program

The chapter starts with a question “Does it Really Matter What We spend on Advertising?”
The rule of business is that whatever they are investing is giving them any benefits or is it just the sunk cost. Marketer wants to know that advertisements belong to which category. First we should know why do we need advertisements? Advertisements make the people aware of the product. If Wilsdorf had never advertised about that Mercedes Gleitze wore Rolex watch while swimming across the English Channel, no one would know that Rolex came up with the latest technology of waterproof watches. Advertising about delivering/ communicating what a company can offer to its consumers through various products and services. It reinforces the product’s message.
Many companies establish its brand value through advertisements. Apart from awareness other factors like valuation and ability of the campaign to differentiate the brand name and other response components are also come with the package of advertising.

What is the significance of advertisements?
The answer to this question could be explained through the picture of two fishes in two different pots. If we assume the two pots are different companies and both of them have equal number of consumers. Pot B has advertised about the products by providing more and more information may be it has more to offer. Pot B can attract the consumer of the other company as they fail to make aware their consumer how their brand is different from the other and what more they can offer.

What is the Value of the Advertisement?
It is very difficult to determine the value of the advertisement. The success can be measured by marketing and communication objectives. Then what is the value of objectives? It will guide to develop the integrated marketing communication program. It is very essential to set the realistic objective and sometimes companies don’t recognise the value to set the specific objectives for their program and fails in order to achieve their goals.
To set the objectives communication plays a vital role. The interaction and sharing of the ideas among the group makes easier to set objectives accurately. There should be coordination within the company and the advertising agency while making plans for advertisement and promotion of the brand/product/service. If there are more parties then they should be involved too wherever necessary.

All phases of a firm’s promotional strategy should be based on establishing objectives, including budgeting, creative, media decisions, direct marketing, public relations, sales promotion, and re-seller support. These objective can also enables the decision making process easier. There will be many options and management will make choices based on which of the particular strategy matches the firm’s promotional objectives.
Objectives provide benchmark, by which one can analyse the success or failure of the promotional campaign.
One of the characteristics of good objective is that they are measurable. By the measuring property of the objective can specify the method, evaluate how well the promotion program is working and how effective is the marketing communication program is.
The other character of good objective is the specified target audience. The target audience could be segregate on the basis of geography, demographics, and psychographics and behavior patterns.
Then to determine the target market’s present position one should set the benchmark measure. The benchmark could be on different parameters like awareness, knowledge, image, attitude, intention and the how frequently the advertisements should be changed so as to have an effective impression on their minds.
Lastly, specified time period is the characteristic of good objectives. Depending on the situation an advertisement could run for a month or for a year. One should understand the target audience demand for new advertisements.

How do we determine the promotional objectives?
Marketing objectives are built upon the foundation of thorough situation analysis and hence the marketing plan is developed. The evolution of promotion objectives is from the company’s marketing plan and it exists in its marketing objectives.

Marketing objectives are defined in terms of specific, measurable outputs (sales volume, market share, profits, and return on investment). They should be quantifiable, realistic and attainable. However the integrated marketing communications objectives are based on certain communication tasks. It should align with the message that is to be delivering to the target audience. The company should be able to translate their marketing goals into communication goals and promotional objectives. The primary role of IMC is to communicate the brands knowledge and interest, favourable attitudes and image and purchase intentions. Consumer will not necessarily respond immediately therefore advertiser should provide most relevant information and create favourable disposition towards brand before they react.
Some of the managers consider that the promotional program is sales oriented objectives. For them if the firm has spent money on advertising and promotion it should influence the sales. There are many factors that influence the sales.

Sometimes advertisements play vital role in company’s marketing program and then sales oriented objectives help. They refer advertising and sales promotion as the key determinants of brand’s market share. Sales may not play a vital role but managers are needed to keep a closer eye on the sales and market shares and make changes in the promotional programs if needed.

Sometimes advertisements play vital role in company’s marketing program and then sales oriented objectives help. They refer advertising and sales promotion as the key determinants of brand’s market share. Sales may not play a vital role but managers are needed to keep a closer eye on the sales and market shares and make changes in the promotional programs if needed.

There are various steps in the Lavidge and Steiner hierarchy of effects model as the consumers is made aware of the product through advertisement to the time he makes a decision to buy a particular product.

What is DAGMAR? What is the relevance of this model in this chapter?

DAGMAR: Defining Advertising Goals for Measured Advertising Results.
It was developed by Russell Colley in 1961. This model is important to the development of specified advertising goals and measuring advertising effectiveness.
There are four hierarchical steps: Awareness, Comprehension, Conviction and action. (Same is describe through the diagram below)
Few criticisms of DAGMAR Model
1)      Problems with the response hierarchy: consumers may not follow the same sequence
2)      Sales Objectives: it doesn’t include the sales of the product which sales oriented company needs
3)      Practicality and Costs: Difficulties in implementing them
4)      Inhibition of Creativity: This model is too concerned with quantitative assessment of a campaign’s impact on awareness, brand name recall, or specific persuasion measures

How do we establish and allocate the promotion budget?

The managers/ company who understand the value of advertisement and promotion rest assume it to be an expense instead of investment. Most of the models used to establish advertising budgets can be categorized as taking an economic or a sales response perspective
Marginal Analysis: as the expenditure increases for advertisement and promotion the sales and gross margin increases too to a point.

Sales Response Model: there are 2 models under this; Concave Downward Function and S-Shaped Response model.
Concave Downward Function Model talks about the diminishing law of microeconomics. The amount of advertisement increases, its effect on consumer’s decision decreases. The S-Shaped Response Curve says after certain amount of investment, the advertising and promotional efforts show the effect and the sales increases.
Budgeting Approaches:

Top-Down Approaches: In this approach a budgetary amount is established and then the monies are passed to many departments. This approach includes
a)       The Affordable Method: The firm allocate the amount to be spent on all operations of a company apart from advertisements and promotions; only leftover is allocated to these departments.
b)      The Arbitrary Allocation: In this approach the firms allocate the budgetary amount without any theoretical knowledge just on the intuitions.
c)       Percentage of sales: The budgetary amount if allocated on the basis of the sales of the product
d)      Competitive parity: The managers allocate the budget by matching the competition’s percentage-of-sales expenditure. The advantage of this method is that it uses the collective wisdom, takes competition into consideration which establishes the stability in the market.
e)       Return on investment: The advertisements and promotions are considered as investment and these firms expect return in terms of more sales.
2)      Bottom-Up Approaches: It is more effective tool than the previous approach. In this approach both the communication objectives and promotional objectives go hand in hand.
a)       Objective and Task Method: It consists of three steps- by defining the communication objectives to attain; by formulating the detailed strategies and tasks needed to accomplish them; assessing the costs associated with performance of these strategies and tasks.
b)      Payout Planning: In this method, first the firm will analysis the basic idea of the revenues generated and the cost incurred in 2 or 3 years; and accordingly allocate the budget.
c)       Quantitative Model: In model uses the quantitative statistical technics to determine the relative contribution of the advertising budget to sales.
When the managers determine the budget for advertising and promotion, they should consider many other factors. Market size and potential, agency policies and preferences of the management do influence the decision made in this regard.

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