NATURE OF ADVERTISING

1. SHIFTS DEMAND CURVE TO RIGHT

2. MAKES DEMAND LESS ELASTIC
3. PROMOTIONAL ELASTICITY AND PLC
- INDUSTRY ELASTICITY
- SHARE ELASTICITY
4. ADVERTISING ACTIVITIES OF RIVALS
- DEFENSIVE
- OFFENSIVE
5. PAST ADVERTISING
6. COST OR INVESTMENT
7. QUALITY OF ADVERTISING
8. LAGGED EFFECT
9. PROBLEM OF DEFINITION OF GOALS &
MEASUREMENT
1
 Percentage of Sales Method
Sales:A Questionable Objective!

Promotion
Product Quality Competition

Technology SALES Distribution

The Economy Price Policy

2
 Top-Down Budgeting

Top Management Sets the Spending

Limit

The Promotion Budget Is Set to

Stay Within the Spending Limit

3
 Top-Down Approaches
• The Affordable Method
• What we have to spare. What's left to spend.
• Arbitrary Allocation Method
• No system. Seemed like a good idea at the time.
• Percentage of Sales Method
• Set percentage of sales or amount per unit.
• Competitive Parity Method
• Match competitor or industry average spending.
• Return on Investment Method
• Spending is treated as a capital investment.\]
• Increases Sales Today
• Builds goodwill tomorrow
• Combined Wisdom 4
 Bottom-Up Budgeting

Total Budget Is Approved by

Top Management

Cost of Activities are Budgeted

Activities to Achieve Objectives

Are Planned

Promotional Objectives Are Set

5
 Objective and Task Method

Establish Objectives
(create awareness of new product among
20 percent of target market)

Determine Specific Tasks

(advertise on market area television and
radio and local newspapers)

Estimate Costs Associated with Tasks

(create awareness of new product among
20 percent of target market)
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 Value of Objectives

• Focus and Coordination

• They help to orient everyone involved
toward one, common goal.
• Plans and Decisions
• They serve as criteria for developing
plans and making decisions.
• Measurement and Control
• They provide the standards and
benchmarks for evaluating results.

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 Inverted Pyramid of
Communications Effects

90% Awareness
Co
gn

70% Knowledge
i
ti v
e

40% Liking
Af
fe

25% Preference
cti
ve

20% Trial
Co

5% Use
na
tiv
e

8
 Practical Difficulties
Legitimate Problems
• Response Hierarchy
Problems
• Doesn't always define the
process people use to
reach purchase/use.
• Attitude - Behavior
Relationship
• Attitude change doesn't
always lead to change in
actions or behavior.
Questionable Objections
• Sales Objectives Are
Needed
• Sales are all that really
counts, not communications
objectives.
• Costly and Impractical
• The research and efforts
cost more then the results
are worth.
• Inhibition of Creativity
• Too many rules and too
much structure curb genius.
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 BASIC Principle of
Marginal Analysis

Increase Spending . . . IF:

The increased cost is less than the
incremental (marginal) return.
Decrease Spending . . . IF:
The increased cost is more than the
incremental (marginal) return.
Hold Spending Level. . . IF:
The increased cost is equal to the
incremental (marginal) return.
10
 Marginal Analysis

Sales Gross Margin

Sales in $

Ad. Expenditure

Profit

Point A
Advertising / Promotion in $ 11
 ADVERTISING OUTLAY BY MARGINAL ANALYSIS

loss
INCREMENTAL REVENUE (PRICE)
70
RS.
PER profit
UNIT

INCREMENTAL ADVG. COST

20
INCREMENTAL PRODUCTION COST

NUMBER OF UNITS 12
Problems with Marginal Analysis

• Assumption:
• Sales are the principal objective of
advertising and/or promotion.

• Assumption:
• Sales are the result of advertising and
promotion and nothing else.

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 Young & Rrubicam’s High assay model
CONSUMER PRODUCT CONSUMER: MEDIA CONSUMER:ADVERTISING
BEHAVIOUR BEHAVIOUR BEHAVIOUR
A: BRAND SHARE A. AUDIENCE SIZE PERFORMANCE COEFFICIENTS
B. DEMOGRAPHIC B. AUDIENCE COMPOSITION A. EFFECT ON
DESCRIPTION C. DUPLICATION HOLDING/SWITCHING
C. BRAND SWITCHING D. ACCUMULATION B. EFFCT OF ADDED
PROBABILTY EXPOSURES
E. RATE STRUCTURE
D. PURCHASE RATES C. RELATIVE EFFECT OF:
ALTERNATIVE MEDIS
SPACE/TIME UNITS
MECHNICAL VRIABLES

COMPUTER
GENERAL DECISION SYSTEM
A: FIND AND BUY LOWEST COST PER PROSPECT
1. DETERMINE NUMBER OF PROSPECTS REACHED BYEACH MEDIUM
2. MODIFY FOR ADVERTISING COEFFICIENTS AD OTHER FACTORS OUTPUT
3. DIVIDE INTO COST OF EACH MEDIUM
B. ADJUST FOR EFFECT OF PURCHASE
1. DETERMINE DUPLICATION MEDIA SCHEDULE
2. UPDATE DISCOUNT AVAILABILITY WITH OPTIMUM
C. DETERMINE WHETHER OPTIMUM EXPOSURE HAS BEEN OBTAINED RACH , FREQUENCY
AND PERIODICITY

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