Advertising

and Promotion
An Integrated Marketing
Communications Perspective

Chapter #7
Establishing Objectives and Budgeting for the Promotional
Program

Dr. Reham Farouk

Setting Objectives
Unfortunately, many companies have difficulty with the most critical step in the
promotional planning process—setting realistic objectives that will guide the
development of the IMC program

While the task of setting objectives can be complex and difficult, it must be done
properly because Specific goals and objectives are the foundation on which all other
promotional decisions are made.

Budgeting for advertising and other promotional areas, as well as creative and media
strategies and tactics, evolves from these objectives.
The Value of Objectives
Communications
◦ Objectives facilitate coordination within
The company, Inside the ad agency, and between the two.

◦ Any other parties involved in the promotional campaign, such as

public relations and/or sales promotion firms, research specialists,
and media buying services, must also know what the company hopes
to accomplish through its marketing communications program.
 The Value of Objectives
Planning and decision making
◦ Objectives guide decision making and development of the integrated
marketing communications plan.

◦ All phases of a firm’s promotional strategy should be based on the

established objectives, including budgeting, creative, and media decisions as
well as direct-marketing, public relations/publicity, sales promotion, and/or
reseller support programs.

◦ Choices should be made based on how well a particular strategy matches

the firm’s promotional objectives.
The Value of Objectives
Measurement and evaluation of results
◦ Objectives provide a benchmark to measure success or failure and evaluate the
effectiveness of the marketing communication program.

◦ Integrated marketing communications objectives should be based on a

thorough situation analysis that identifies the marketing and promotional
issues facing the company or a brand.

◦ Advertising and promotional objectives are not the same as marketing

objectives (although many firms tend to treat them as synonymous).
 Marketing Objectives VERSUS Communications Objectives
Integrated marketing communications
Marketing objectives
objectives
• Statements of what is to be accomplished by the • Statements of what various aspects of the IMC
overall marketing program, within a given period program will accomplish, based on the particular
of time. communications tasks required to deliver the
• Defined in terms of sales, profit, or market share appropriate messages to the target audience.

• Ex: To increase sales by 10 percent in the small- • Ex: create awareness, change perception, create
business segment of the market during the next favorable brand image
12 months
Sales VERSUS Communications Objectives
Many planners approach promotion from a communications perspective and believe
the objective of advertising and other promotional-mix elements is usually to
communicate information or a selling message about a product or service.

Other managers argue that sales or some related measure, such as market share, is the
only meaningful goal for advertising and promotion and should be the basis for setting
objectives.

These two perspectives have been the topic of considerable debate and are worth
examining further.
 Sales VERSUS Communications Objectives
sales objectives

• Primary goal is increased sales.

• Promotional spending requires economic justification.

• Should produce quantifiable results.

• Ex: Increase Sales volume, Increase market share, generate more profit.
 FIGURE 7–1 Factors Influencing Sales

“Nothing will kill a poor product faster than good advertising.”

 Problem With Sales Objectives
•Sales results can be due any other marketing mix variables.

•Advertising can make consumer aware and interested in the brand. But it can not make them buy it.

•The effect of advertising is often expected to occur over an extended period.

•Money spent on advertising do NOT necessarily have an immediate impacts on sales (carryover
effect).
•A Review Of Econometric Studies that examined the duration of cumulative advertising effects
found that for mature, frequently purchased, low-priced products, advertising’s effect on sales lasts
up to nine months.
 Where Sales Objectives are appropriate?
Direct-response advertising is one type of advertising that evaluates its
effectiveness on the basis of sales.

Merchandise is advertised in material mailed to customers, in newspapers and

magazines, through the Internet, or on television. The consumer purchases the
merchandise by mail, on the Internet, or by calling a toll-free number.

The direct-response advertiser generally sets objectives and measures success in

terms of the sales response generated by the ad.
 Where Sales Objectives are appropriate?
Retail advertising is another area where the advertiser often seeks an immediate
response, particularly when sales or special events are being promoted.

Retail advertising designed to attract consumers to stores during the sales period
(and to generate sales volume).

Management can determine the effectiveness of its promotional effort by

analyzing store traffic and sales volume during the sale and comparing them to
figures for non-sale days.
 Where Sales Objectives are appropriate?
Sales-oriented objectives are also used when advertising plays a dominant
role in a firm’s marketing program and other factors are relatively stable.

For example, many companies compete in mature markets with established

channels of distribution, stable competitive prices and promotional
budgets, and products of similar quality.

They view advertising and sales promotion as the key determinants of a

brand’s sales or market share.
 Sales VERSUS Communications Objectives
communications objectives

• Primary Goal is creating favorable personality.

• Increasing brand knowledge, interest, favorable attitudes and image.

• Immediate response not expected.

 Communications Objectives
communications-based Brand
objectives generally use the Cognitive (thinking) Brand
knowledge
hierarchical models Ads provide awareness
information & facts and interest
discussed in Chapter 5
when setting advertising & Favorable
promotional objectives. Affective (feeling) Purchase
attitudes
Ads change intentions
attitudes & feelings
and image
In all these models,
consumers pass through Conative
three stages: (think), (feel), (behavioral)
Purchase
and (Do). Ads stimulate or
direct desires
 Communications Effects Pyramid
5% Use

20% Trial

25% Preference

40% Liking

70% Knowledge/comprehension

90% Awareness
 Communications Effects Pyramid
The communications pyramid can also
5% Use
be used to determine promotional
objectives for an established brand.
20% Trial
The promotional planner must
determine where the target audience 25% Preference
lies with respect to the various blocks
40% Liking
in the pyramid.
70% Knowledge/comprehension

90% Awareness
Communications Objectives
A Sales Goal Must Be Transformed Into A Communications Objective.

If the marketing plan for an established brand has as an objective of

increasing sales by 10 percent

the promotional planner will eventually have to think in terms of the

message that will be communicated to the target audience to achieve this.
If the marketing plan for an established brand has as an
objective of increasing sales by 10 percent
Possible objectives include the following:
• Increasing the percentage of consumers in the target market who associate specific
features, benefits, or advantages with our brand.

• Increasing the number of consumers in the target audience who prefer our product
over the competition’s.

• Encouraging current users of the product to use it more frequently or in more

situations.

• Encouraging new consumers who have never used our brand to try it.
 Problems with Communications Objectives
•What is adequate level of awareness, knowledge, liking, preference, or conviction.

•Having no formulas or guidelines that provide this information.

•A promotional manager must base decisions on personal experience, as well as the

marketing history of this/ and similar brands.
 Setting
Objectives Using
The
Communications
Effects Pyramid
 Establishing the Promotional Budget
How much should To whom should
we spend on we allocate the
advertising and money?
promotion?

Two primary decisions that every organization

must make regarding their advertising and
promotional budgets:
• Establishing a budget amount
• Allocating the budget
Establishing the Promotional Budget
How much to spend on the promotional efforts?
Unfortunately managers treat communication budget as expenses cutting
profit rather than an investment.

As a result, when times get tough, the advertising and promotional budget is
the first to be cut.

Even though there is strong evidence that exactly the opposite should occur.
Top-Down VERSUS Bottom-Up Approaches to
Budget Setting
Budgeting Approaches: Top-Down Approaches
The Affordable Method / All- you-can-afford method
• The firm determines the amount to be spent in various areas such as production and
operations. Then it allocates what’s left to advertising and promotion, considering this
to be the amount it can afford.

• This approach is common among small firms, and/ or firm with a primary focus on
product development.

• Unfortunately, it is also used in large firms, particularly those do not understand the
role of advertising and promotion. no consideration for communication objectives or
goal.
Budgeting Approaches: Top-Down Approaches
The Affordable Method / All- you-can-afford method

• The logic for this approach, if we know what we can afford and we do not exceed it,
we will not get into financial problems.

• Often this method does not allocate enough money to get the product off the ground
and into the market.

• The task to be performed by the advertising/promotions function is not considered,

and the likelihood of under- or overspending is high.
 Budgeting Approaches: Top-Down Approaches
Arbitrary Allocation
• The budget is determined by management solely on the basis of what is FELT to be
necessary.

• The arbitrary allocation approach has no obvious advantages. No systematic thinking

has occurred, no objectives have been budgeted for, and the concept and purpose of
advertising and promotion have been largely ignored

• There is no good explanation why this approach continues to be used. Yet budgets
continue to be set this way, and our purpose in discussing this method is to point out
only that it is used—NOT RECOMMENDED.
Budgeting Approaches: Top-Down Approaches
Percentage of Sales
• The most commonly used method for budget setting (particularly in large firms)

• Advertising and promotions budget is based on sales of the product. Management

determines the amount by either

• In the straight-percentage method, the budget is a percentage of these sales, often an

industry standard percentage.
Alternative Methods for Computing Percentage of Sales
Percentage-of-sales Method
Advantage & Disadvantage
Advantages: One advantage of using future sales as a base is that the budget is Not Based
On Last Year’s Sales.

As the market changes, management must factor the effect of these changes on sales
into next year’s forecast rather than relying on past data. The resulting budget is more
likely to reflect current conditions and be more appropriate.
Percentage-of-sales Method
Advantage & Disadvantage
Advantages: It is financially safe and keeps ad spending within reasonable limits, as it
bases spending on the past year’s sales or what the firm expects to sell in the upcoming
year.

when sales Increases that leads to budget increases, and sales decreases resulting in
advertising decreases.

The method is straightforward, and easy to implement and generally stable.

Percentage-of-sales Method
Advantage & Disadvantage
Disadvantages: Letting the level of sales determine the amount of advertising.

It treats advertising as an expense associated with making a sale rather than an

investment.

If the budget is depending on sales, decreases in sales will lead to decreases in budgets
when they most need to be increased.
Percentage-of-sales Method
Advantage & Disadvantage
Disadvantages: Difficult To Employ For NEW PRODUCT Introductions. If no sales histories
are available, there is no basis for establishing the budget. Projections of future sales may
be difficult, particularly if the product is highly innovative.

Companies that maintain or increase their ad expenditures during recessions achieve

increased visibility and higher growth in both sales and market share (compared to those
that reduce advertising outlays).
Budgeting Approaches: Top-Down Approaches
Competitive Parity
In the competitive parity method, managers establish budget amounts by matching the
competition’s percentage-of-sales expenditures.

Large corporations often subscribe to services such as Competitive Media Reporting.

It is never wise to ignore the competition; managers must always be aware of what
competitors are doing. But they should not just emulate them in setting goals and
developing strategies.
Budgeting Approaches: Top-Down Approaches
Competitive Parity
Disadvantages:
• It ignores the fact that advertising and promotions 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.

• This assumption ignores the contributions of creative executions and/or media

allocations.

• It ignores possible advantages of the firm itself; some companies simply make better
products than others.
 Budgeting Approaches: Bottom-up Approach
•Bottom-up Approach, the budget is based on
consideration of the firm’s predetermined
communications objectives.

•The primary advantage of this approach is that the

budget is driven by the objectives to be attained, rather
than a predetermined amount management is willing to
spend.
Budget Setting Uses A Buildup Approach
Consisting Of Three Steps:
1. Defining the communication objectives.
Create awareness of new product among 20 percent of target market.

2. Determining the specific strategies and task needed to attain them.

Advertising on market area television and radio stations and in major newspaper.

3. Estimating the coast associated with performance of these strategies and tasks.
Television advertising $ 575.000
Radio advertising $225.000 The Total Budget Is Based On
Newspaper advertising $175.000 The Accumulation Of These Costs.
Implementing the Objective and Task Approach
• Monitor – performance should be monitored and evaluated in light of the budget
appropriated.

• Re-evaluate objectives – once specific objectives have been attained, monies may be
better spent on new goals.

• If one has achieved the level of consumer awareness sought, the budget should be
altered to stress a higher-order objective such as evaluation or trial.
Implementing the Objective and Task Approach
Isolate objectives

Determine tasks required

Estimate required expenditures

Monitor

Reevaluate objectives
 Implementing the Objective and Task Approach
Disadvantage:
The difficulty of determining which tasks will be required and the costs
associated with each.

For example, specifically what tasks are needed to attain awareness among
50 percent of the target market? How much will it cost to perform these
tasks?

It is not always possible to know exactly what is required and/or how much it
will cost to complete the job.