Advertising

The 4-M Approach to Advertising

• Who is your Market?

• What Message do you want to convey to the Market?

• What Media will you use to convey the Message to the

Market?

• How will you Measure the effects of the Message

delivered by the Media to the Market?
 The second M - Message

DMB&B advertising standards

• Does ad position the product simply and with unmistakable

clarity?
• Does ad bolt the brand to the clinching benefit?
• Does ad contain a Power Idea?
• Does ad design in Brand Personality?
• Is ad unexpected?
• Is ad single-minded?
• Does ad reward the prospect?
• Is ad visually arresting?
• Does ad exhibit painstaking craftsmanship?
 The third M: Media

• Media Objectives

• First step in the process of formulating media plan.

• Must flow from marketing and advertising plans

• Geared to pinpointed target market

 Concepts in Media Planning: Reach

• Unduplicated percentage of a population that is exposed to

the advertising media schedule (or vehicle) at least once
during a designated time period.

• Reach is expressed as either

– (a) Number of people (or households)

– (b) % of target market
 Concepts in Media Planning: Frequency

• Number of times during the designated time period that a

household (or individual) is exposed to the vehicle or to
the schedule.

• Usually defined as an average number.

• Problem: Some people may be exposed a few times and

others several times. It may be important to distinguish
between these groups.
Concepts in Media Planning: Exposure Distribution
• Proportions of target households (or individuals) exposed to the
advertising schedule (or vehicle) different numbers of times.

Number of Exposures Proportion of Target Exposed

0 20
1 15
2 10
3 30
4 10
5 5
>5 10

• The above distribution is also referred to as Effective Reach

• Tradeoff between reach and frequency
 Concepts in Media Planning: Continuity

• Refers to how advertising is scheduled over the time span

of a campaign period

• Continuous Advertising
• Flighting
• Pulsing

• Usually based on the expected relative volume of business

during intervals within the campaign period
 Gross Rating Point (GRP)

• Characterizes the gross weight of a given media effort

against a defined target market.

• GRP = Reach * (Average) Frequency

• If media reached 70% of designated target market and the

average exposure frequency was 3.0 exposures.

• GRP = 70*3.0 = 210 GRPs

 Cost conventions
• Magazines: CPM
• Cost per thousand =
Cost of ad space ($, Pts, DM) *1000 / Circulation

• Television: CPRP
• Cost per rating point =
Cost of commercial time / Program rating

• World Wide Web

1. Cost per thousand (CPM) = Ad rates web sites charge for
displaying an ad 1000 times (or “impressions)
2. Cost per click (CPC) = Ad rate charged when the surfer
responds to a displayed ad
3. Cost per lead / sale (CPS) = Charged only if viewer responds
with personal information which leads to a sale of the product
General guidelines for formulation of media objectives

• Goal Establishment

• Reach and Frequency

• Continuity over time
• Competitive approach
• Merchandising support requirements
• Creative requirements of the message
• Image and corporate policy considerations
 Structural Media Goals
• Product Life Cycle (PLC) considerations

– Relationship between PLC and Media Strategy

• Introductory stage: Need to build awareness

⇒ Reach more important than Frequency
• But, if product is for a niche market
⇒ Frequency may be more important
• If firm is willing to invest considerable promotional monies
• (Peckham’s Formula)
⇒ Continuity implications
• Low reach objective
⇒ Distributors may be unhappy
• Maturity stage: Need for reminder advertising
⇒ Maximize number of messages delivered
 Structural Media Goals

• Breadth of Target Market

• Greater geographic market dispersion
⇒ Greater emphasis on Reach

• Repurchase Cycle
• Shorter cycle ⇒ Greater Frequency needed
• Longer cycle ⇒ Market Demographics may change
⇒ Reach is focus

• Target Market Turnover (baby food)

• Greater turnover ⇒ Need to constantly update media strategy
 Media Planning and Scheduling Models

• Objective Function

• Decision Variables

• Constraints

• Methodology
 The fourth M: Measurement
• Communication Effects (Copy Testing)
– Viewer playback of what ad is saying
– Cognitive response (thoughts while watching)
– Motivation research (hidden meanings)
– Objective measures
– Theater testing
– Day after recall (DAR)

• Sales Effects
– Experimental designs
– Scanner data
– Direct response / mail
– Split cable
 Measurement: Need for Models

• In words that surely stirred any sleepy executive attending the

early morning speech, Mr. Esrey said clients are "going to hold
[ad agencies] more closely accountable for results than ever
before. That's not just because we're going to be more
demanding in getting value for our advertising dollars. It's also
because we know the technology is there to measure advertising
impact more precisely than you have done in the past."
William T. Esrey CEO, SPRINT
at the 1995 AAAA meetings
April 27, 1995
• Need for models that relate advertising to actual market
outcomes, i.e. sales.
 Measuring the Impact of Advertising
A Case Study of Kraft Foods

Advertising effects
• Immediate
• Long-term
• "Halo"

Philip Morris owners of Kraft spent $2 billion on advertising in 1991.

But only 25% of marketing spending is on advertising, remaining on

trade and consumer promotion.

Question: If 25% is not right, what is?

 Kraft's Approach
• Take three alternative approaches and look for convergent validity
1. In-market test.
• Expensive
• Requires detailed marketing data including store sales, local
market household sample, etc.
2. Conceptual models
• Labor intensive and cumbersome
• Cost effective
3. Empirical analysis
• Needs comprehensive marketing information
• **Exciting**
• Uses Media Marketing Assessment Inc.'s (MMA) models
MMA: General findings on advertising using
empirical models

• There is a positive and measurable contribution from

advertising in 98 of 102 cases studied.

• Clients are able to use this information to make

advertising work harder. 
 How do the models work?

• Inputs
• 4 year brand level data
• Sales and marketing history
• Time interval: week
• Data on 23 major markets accounting for half of brand's U.S.
volume
• Obtained from internal client sources and other suppliers like
AC Nielsen, etc.

• Output
• Sales as a function of own and competitive marketing actions
and exogenous factors such as weather and commodity pricing.
 Interpreting the results

• What were the actual sales levels

• What did the model estimate sales to be

• Where the model missed

 Methodology: Brand A - Boston Market
140

120

100

80
Sales (Units)

Actual
60 Estimate
Sales = f(Marketing, Competition, ExogenousFactors)
Error
40

20

0
1 2 3 4 5 6 7 8 9 10

-20

Week
 Determining advertising effects

• Immediate effects

• Am I under supporting my brand

• And by how much

 Advertising - Immediate Effect

6
4
2
Volume Index

0
-2
-4
-6
-8
-10
-12
-14
0 25 50 75 100 125 150 175 200

Advertising Expenditure Index

 Determining advertising effects

• Halo effects

• Two distinct product forms of a brand available.

Each has own distinct copy.

– Form 1 ads sell both Forms 1 and 2.

– Form 2 ads sell both Forms 1 and 2.
 Advertising “Halo” Effect

Form 2
Advertising

Form 2
Sales

Form 1
Sales
Form 1
Advertising

0 50 100 150 200 250 300

 How is Kraft using the results?

• Calculate ROMI

• Compute level of advertising spending that maximizes

profits.

• Trade-off spending across brands.

• Brand value and trademark equity.

 How is Kraft using the results?

• Can I promote/advertising a whole set of products rather

than individual brands.

• Need to look at halo effects across brands and identify

"Market Structure".

• Halo effects quantified by cross-advertising elasticities.

 Future directions

• Local planning

• Where do I increase spending.

• Where can I cut spending.
 Local Planning

Philadelphia

Miami

Dallas

Denver

San Francisco

New York

Chicago

Boston

Albany

Brand A Advertising Elasticity

 Future directions

• Spending optimization

• Media scheduling and planning

• "focal point of a lot of our development efforts at
MMA: media scheduling and planning"
• "The fact that brands interact with each other is
known (Halo effect). We've quantified it. When
one applies this information in the planning process,
we see that you can't plan an individual brand in a
vacuum. It must be in the context of the related
brand plans as well."
 Kraft's conclusions based on the models

• Not surprisingly, we are finding that advertising is our most

profitable investment. The return on our ad dollars far exceeds that
of either trade or consumer promotion spending. This is true,
however, only when we take into account all three components of
advertising's impact...immediate effects, long-term effects, and the
"halo" effect.

• With the help of new marketing data bases that include elements
from the full marketing mix, and the use of increasingly
sophisticated models, we are comfortable with many of the answers
we are getting.
Mike Duffy,Kraft Foods, Inc.
 Selecting TV Programs Using Purchase Data
Traditional method:
Look at demographic categories and purchase levels in each category.

head of households 18-49

25-54
55+
females 18-49
25-54
55+
Heaviest purchasing group
for product categories of interest: females 18-49.
 Traditional Method (Continued)

Compute cost-by-exposure (CE) index

= cost-per-thousand x Exposure index for

index (CPM) for show females 18-49

Shows with the highest CE index among females 18 to 49

would be the “best selections.”
 Traditional Method (Continued)
• Cost-per-thousand index for a show
Average C-P-M for all network prime time shows = $10.
Cost of reaching 1000 viewers of show X = $15.
CPM index for show X = (10/15) x 100 = 67.

• Exposure index (household level or demographic segment level)

% of episodes of show X watched by household (segment)
% of episodes of show X watched by sample (market)

• Purchase index (for household level)

Total purchases in the category by the household
Average purchase of category by sample
 Show Cost/1000 Exposure Index Cost per exposure
index/show: C per household for index; CE = C *
females 18-49: E E /100
CBS News 101 77 78
NBC News 96 76 73
ABC World News 103 86 89
Tonight Show 78 94 73
Nightline 94 101 95
Newhart 79 98 77
Alf 92 115 106
Who’s the Boss 95 110 105
Moonlighting 65 120 78
Matlock 135 76 103
Growing Pains 99 112 111
Wiseguy 151 96 145
Night Court 90 109 98
Cosby Show 77 115 81
Cheers 68 111 75
Knots landing 97 96 97
Dallas 95 85 81
Golden Girls 110 83 91
Murder She Wrote
Family Ties
124
61
66
114
82
70 Traditional
Young & Restless
General Hospital
111
80
92
108
102
86 Method
Price is Right 162 81 131
 Problem with traditional method
• Requires identification of demographic segment from another
data source based on purchase incidence.
• But even within the demographic group those who buy a lot, may
not be those who watch the shows a lot. Sure, there would be
overlap, but no information on how much.
• Hence indirect methods do not necessarily relate purchase
incidence to exposure.
•"Price is Right" is the second best pick for diet frozen
entrees. However, viewers of this show have a below
average purchase incidence, even though they are part of the
target segment.
• By looking at actual purchase behavior, we can directly relate
purchase incidence and exposure.
 Household data based method
• Do not worry about demographic group.

For each household in the sample, compute cost-by-exposure

(CE) index.
= CPM for show × Exposure index for the household

Compute the average CE index for, say, the heaviest third of

purchasers.

Hence, if criterion is to reach the heaviest purchasers of the

product, above method is appropriate.

In a similar manner the CE index can be computed to reach the

lightest purchasers of the product.

The CE index may also be weighted by the purchase index if it is

necessary to compare across high and low incidence purchasers.
Comparison of methods for Diet Frozen Entrees

Traditional Method Direct selection based on purchases

1. Wisegy 1. Wiseguy

2. Price is Right CBS News

3. Growing Pains Murder, she wrote

4 Alf Matlock

5. Who’s the Boss Price is Right

6. Matlock Night court

 Correlation across methods
Yogurt
Traditional Purchase based
Traditional 1.0
Purchase based 0.57 1.0

Diet Frozen
Entrees

Traditional 1.0
Purchase based 0.22 1.0

Carbonated Soft
Drinks
Traditional 1.0
Purchase based 0.68 1.0
 Prediction of different methods
Step 1:Determine the top 10 shows for each product category using both
traditional as well as purchase methods.
Do this for each of two years (in this case 1988 & 1989)
- Insert Table 2 & 3 here -
Step 2:Determine the number of the top ten selections that were the same
from 1988 to 1989 for the two methods

Product Category Traditional Purchase

Yogurt 5 6

Diet Frozen entrees 5 8

Carbonated soft 5 7
drinks
 Conclusions
• From the perspective of
*maximum effectiveness and efficiency of reaching target
audience
*predicting future media vehicle requirements
the purchase based method appears to have important implications.

• Household scanner panel data may have its advantages after all!

• What does this mean for the viability of bulk buying and subsequent
allocation by gross demographic categories?

• Tradeoff between economies of bulk buying and effectiveness in

reaching target consumers.
 Promotion Mix

• What is the nature of each promotional tool?

• Advertising
• Personal selling 90
80
• Sales promotion
70
• Publicity 60
• Promotion Mix and Product Type 50
40
30
20
10

Consumer 0

Relations
Promotion
Advertising

Personal
Selling

Public
Sales
Industrial
 Sales Promotion

• Short term incentives designed to encourage:

• Brand switching
• Purchase acceleration
• Stockpiling
• Increased consumption
• Two kinds:
• Trade promotions
• Consumer promotions
 Types of Promotions

CONSUMER TRADE
• Sampling • Off-invoice
• Coupons • Free goods
• Price-offs • Slotting allowances
• Package coupons • Spiffs
• Premiums • Street money
• Contests / Sweepstakes • Dating
• Refunds / Rebates • Merchandising allowances
• Bonus packs • Co-operative advertising
• Price packs • Sales contests
• Continuity plans • Sales bonuses
 Measuring Effectiveness of Trade Deals

BEFORE DURING AFTER

(2 Mon.) (2 Mon.) (2 Mon.)

Sales / Month 10000 30000 2000

Price to Retailer $20 $17.50 $20
Manufacturer Costs $10 $10 $10
Margin $10 $7.50 $10
Profits with Promo 200000 450000 40000
Profits w/o Promo 200000 200000 200000
Incremental Profits 0 250000 -160000
Net Profits -

90000
When to Trade Deal: Manufacturer P.O.V.

HIGH LOW

HIGH PROMOTE MAYBE

Promotional
Elasticity

LOW DO NOT DO NOT

Holding
Costs
 Computing Coupon Costs

Number of Coupons Distributed D

Cost per 1000 for Distribution C
Face Value of Coupon F
Processing Fee P
Redemption Rate R

Total Number of Redemptions= D*R

Cost of Distribution = D*C/1000
Cost of Redeeming = (F+P)*D*R
Total Cost =D((F+P)*R+(C/1000))
Cost per Redemption =Total Cost/#Redeemed
=((F+P)*R+(C/1000))/R
 Computing Couponing Profits

Profit Contribution per Unit Sold M

Fraction of Incremental Redemption Sales I
Fraction of Redemptions that are Legitimate L

Total Incremental Profits = D*R*L*I*M

Total Costs =D*((F+P)*R+(C/1000))
Net Incremental Profits =D*(R*L*I*M-(F+P)*R-(C/1000))

Required Incremental Sales to Break Even

Net Incremental Profits = 0
D*(R*L*I*M-(F+P)*R-(C/1000)) = 0
R*L*I*M = (F+P)*R-(C/1000)
I = ((F+P)/(L*M)) + (C/(1000*R*L*M))