Establishing Objectives and Budgeting for the Promotional Program

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Chapter 7

• Establishing Objectives and Budgeting for the
  Promotional Program

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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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Problems with Sales Objectives

• Problems in achieving sales could be a function
  of other marketing mix variables.
• Problems in achieving sales could be due to other
  macro factors.
• The effects of advertising on sales are not
  always immediate and occur over an extended time
  period.
• Sales objectives offer little direction to those
  responsible for planning, developing and
  executing the promotional program.

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SALES? A Questionable Objective!
Promotion
Product Quality
Competition
SALES
Distribution
Technology
The Economy
Price Policy
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Marginal Analysis
Sales
Gross Margin
Sales in
Ad. Expenditure
Profit
Point A
Advertising / Promotion in
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Advertising Sales/Response Functions
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Advertising and MovementToward Action
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New Brand Intro Infiniti
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Inverted Pyramid ofCommunications Effects
90 Awareness 70 Knowledge 40 Liking 25
Preference 20 Trial 5 Use
Cognitive
Affective
Conative
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Good Objectives Are

• Concrete and measurable
• Specify a well-defined audience
• Establish benchmark measures
• Specify a time period
• Attainable
• Realistic

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Meeting objectives

• Case of Cathay Pacific
• building awareness for new airlink JFK to HK

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Objectives for Cathay Pacific

• Establish minimum load factor of 60 for first 2
  months of july and august
• Increase brand awareness for CP among recent
  travelers to HK from 44 to 50.
• Increase advertising awareness from 28 to 35

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Objectives for Cathay Pacific

• Primary target
• 80 male
• 35 years old
• HHI 75K

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JFK Link
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Results

• Load factor July79, Aug 97
• Brand awareness from 44 to 55
• Campaign awareness from 28 to 45

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Objectives

• Hush Puppies
• relaunch and re-position a brand
• Focus on casual

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Hush Puppies

• Hush Puppies
• relaunch and re-position a brand

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Top-Down Budgeting
Top Management Sets the Spending Limit
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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 (see p227)
• 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.

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Alternative Methods for Computing of Sales
Method 1 Straight Percentage of Sales Method 2
Percentage of Unit Cost
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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
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Budgeting MethodsBottom-Up

• Objective and Task
• do what it takes for the job
• Payout Plan
• spread out over time, often for new products

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Objective and Task Method
Establish Objectives (create awareness of new
product among 20 percent of target market)
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Consider Indices

• SOV share of voice
• SOM share of market
• SOV/SOM index, normally should be equal to 100.
• Index (SOV / SOM) 100

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Try this Example

• Assume that the total Pizza Market is about 100M
  per year and that three competitors share that
  market
• Pizza Hut
• Pizza Haven
• Spags
• Pizza Hut has half of all sales, Pizza Haven has
  35M and the rest is Spags.
• In media spending, Spags spends 1M per year,
  Pizza Haven three times that and Pizza Hut twice
  as much as Pizza Haven.
• Questions
• Calculate SOM, SOV and Indices.
• What do the results show?

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Setting Objectives Using the Communications
Effects Pyramid

• repetitive advertising in newspapers, magazines,
  etc.
• communicate features of brand
• Create favorable attitudes by conveying
  information, promotions, sampling, etc.
• Use sampling and cents-off coupons
• Use continued reinforcement advertising, fewer
  coupons and promotions

• 90 Awareness
• 70 Knowledge
• 40 Liking
• 25 Preference
• 20 Trial
• 5 Repurchase