2007 Thomson South-Western

Marcom Objective Setting and Budgeting

Chapter Six

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Chapter Six Objectives

• Understand the process of marcom objective setting and the requirements for good objectives.

• Describe the hierarchy-of-effects model and its relevance for setting marcom objectives.

• Understand the role of sales as a marcom objective and the logic of vaguely right versus precisely wrong thinking.

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Chapter Six Objectives

• Understand the nature and importance of marcom budgeting.

• Explain the relation between a brand’s share of market (SOM) and its share of voice (SOV).

• Explain the various rules of thumb, or heuristics, that guide practical budgeting.

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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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Marcom Objectives

• 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.

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Marcom Objectives

• 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

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Marcom Objectives

• 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

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Setting Marcom Objectives

• Expression of management consensus• Guides the budgeting, message, and

media aspects of advertising strategy• Provide standards against which results

can be measured

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Advancing Consumers From Unawareness to Awareness

• Advertising (mass media or otherwise) is generally the most effective and efficient method for quickly creating brand awareness.

• Creating an Expectation

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Hierarchy of Effects

• Forming Beliefs and Attitudes • Reinforcing Beliefs and Attitudes • Accomplishing Brand Loyalty

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Requirements for Setting Suitable Marcom Objectives

• Include a precise statement of who, what, and when

• Be quantitative and measurable• Specify the amount of change• Be realistic• Be internally consistent• Be clear and put it in writing

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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

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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”

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The Logic of Vaguely Right Vs. Precisely Wrong Thinking

VersusMeasurementAccuracy

Issue

Vaguely

Precisely

Choice ofObjective

Issue

Right

Wrong

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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.

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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

MC

= (Change in total cost) (Change in quantity)

= TC/Q

MR

= (Change in total Revenue) (Change in quantity)

= TR/Q

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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.

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Practical Budgeting Methods

• Percent-of-Sales Budgeting• Objective-and-Task Method• Competitive Parity Method

(match competitors’ method)• Affordability Method

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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 illogicalSales=f(Advertising) (o)Advertising=f(Sales) (x)

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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

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The Competitive Parity Method

• Sets the ad budget by basically following what competitors are doing

• SOM- the ratio of one brand’s revenue to total category revenue

• SOV-the ratio of a brand’s advertising expenditures to total category advertising expenditures

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Encoding Variability Hypothesis

• Contends that people’s memory for information is enhanced when multiple pathways, or connections are created between the object to be remembered and the information about the object that is to be remembered.

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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