Setting Communication Objectives
Hierarchy of objectives
from top to bottom:
- corporate objective
- functional area objective -> marketing objective
- marketing mix objective -> communication objectives
- instrument objective -> instrument objectives
Setting Communication Objectives
Communication/Brand funnel
while a relatively large number of people become aware of the brand, the number of people who know, like, prefer, try and lastly purchase products of the brand becomes smaller and smaller.
Setting Communication Objectives
Classical Models of Advertising Effects
- AIDA
- DAGMAR (ACCA)
- Hierarchy of effects
- Persuasion Process
All these models consist basically of three stages: attention, cognitive and emotional processing and a resulting behavior. Thus ads should…
… make consumers aware for a new brand
… influence expectations about a brand’s attributes and benefits
… encourage consumers to try the brand
-> The AIDA model is the oldest chain model of advertising effects. It is very simple. The fundamental assumption that attention is a key factor can be found in all follow-up models.
Setting Communication Objectives
Requirements for MarCom
- clearly positioned
- directed to a specific target market
- created to achieve specific objectives
- accomplish objectives within the allocated target market
Setting Communication Objectives
SMART
Specific Measurable Achievable Relevant Time-bound
Setting Communication Objectives
Function of advertising objectives
- Expression of marketing management consensus
- guide for budgeting and defining message and media aspects of a brand’s advertising strategy
- standards against which results can be measured
Setting Communication Objectives
Are sales reasonable objectives?
- no they are not
- carry over effect
- sales give no guidance for creatives and marketers who plan and develop the promotional program
- sales are not only influenced by advertising and promotion but also by competition, distribution, price, economy, product quality, …
Setting Communication Objectives
Research on MarCom
Micro Approaches:
use consumer psychology and consumer-information-processing principles to study multimedia campaigns
Macro Approaches:
Use econometric techniques to assess multimedia effects at the brand level
Setting Communication Objectives
Creativity as objective
How to determine ad creativity?
- creativity can be measured via awards
- creativity can also be measured from the perspective of the receiver
- „it is not creative unless it sells“
Setting Communication Objectives
Creativity as objective
Ad creativity model (Smith)
- divergence and relevance increase creativity which enhances attention to ads, ad attitude, motivation to process
- but does not influence purchase intentions
Setting Communication Objectives
Economic Effects of advertising
Report „Advertising pays: How advertising fuels UK Economy“ by Deloitte LLP
Advertising…
fuels economy as a driver of economic growth
provides information
plays an important role in spurring information
drives competition via the promotion of price and product differentiation
Setting Communication Objectives
Investing in Advertising?
When to invest in advertising?
- ad investments are not just a current expense, they are an investment to ensure long-term success
- consistent investment spending is the key factor underlying successful advertising
- stopping or reducing advertising can cause a brand to lose some of its equity and market share
Setting Communication Objectives
Investing in Advertising?
Conclusion on research of advertising in recession
- strong relationship between advertising and economic cycles
- Reason: sales during a recession are likely to be lower than during expansion
There’s empirical evidence for:
- cutting back advertising -> can hurt sales during and after recession
- not cutting back advertising -> can increase sales during and after recession
- increasing advertisings
- > higher sales, market share, or earnings during or after recession
- > most firms tend to cut back on advertising during a recession, reducing noise and increasing the effectiveness of advertising of the firm that advertises
Setting Communication Objectives
Investing in Advertising?
Putting advertising in perspective
Relationship between Sales Volume, Sales revenue and profit
Profit = Revenue - Expenses
- > advertising is often treated as expenses
- > because profit is only short term, it can be increased by cutting ad expenses
Revenue = Price*Volume
- > cutting advertising decreases revenue as less units are sold or units are sold at lower prices
- > cutting advertising -> decreases profit
Volume = Trial + repeat
Setting Communication Objectives
Investing in Advertising?
Advertising Elasticity
Elasticity
= measure of how responsive the quantity demanded is to changes in marketing variables (e.g. prices and advertising)
Price Elasticity = (% change in quantity) / (% change in price)
Advertising elasticity = (% change in quantity) / (% change in advertising)
Setting Communication Objectives
Investing in Advertising?
Four combinations of advertising and price elasticities for increasing profit
- if price elasticity is low and ad elasticity is low as well -> maintain status quo
- if price elasticity is high and ad elasticity is low -> increase volume by price discounting
- if price elasticity is low and ad elasticity is high -> increase ads
- if price elasticity is high and ad elasticity is high as well -> increase advertising and/or discount prices
-> high price or ad elasticity means that sales will react to changes in price/ads
Budgeting Approaches
Profit
Profit = gross margin - advertisings/promotion expenditures
- > profit is highest when biggest difference between these two factors
- > profit becomes negative when advertising expenditures > gross margin
Budgeting Approaches
Budgeting in theory
- optimal level of any investment is the level that maximizes profits: marginal revenue = marginal costs
- advertisers should continue to increase their advertising investment as long as it is profitable to do so (MR > MC)
MC = (change in total costs) / (change in quantity)
MR = (change in total revenue) / (change in quantity)
Weaknesses of this approach:
- assumption that sales are a direct result of advertising/promotional expenditures and that this effect can be measured
- assumption that advertising and promotion are solely responsible for sales and that there are no other and no situational factors
Budgeting Approaches
Some budgeting methods applied in practice: rules of thumb
Top-down budgeting:
Affordability method
- only the funds left after everything else is budgeted for are used for advertising
- only the most unsophisticated and marginal firms use this method
Budgeting Approaches
Some budgeting methods applied in practice: rules of thumb
Top-down budgeting:
Percentage of Sales
- a brand’s advertising budget is set by establishing the budget as a fixed percentage of past or anticipated sales volume
- method has been criticized as illogical -> advertising as function of sales doesn’t make sense since sales are a function of advertising
Budgeting Approaches
Some budgeting methods applied in practice: rules of thumb
Top-down budgeting:
Competitive parity method
- this method sets a brand’s advertising budget by basically following what competitors are doing
- armed with knowledge of its competitors’ budget, a company may choose to match or exceed that budget
Budgeting Approaches
Bottom-up budgeting
Objective and task method:
- Sequential procedures
1) Establish objectives
2) determine tasks required
3) estimate required expenditures
4) monitor
5) reevaluate objectives
- > this is the most defendable method
Budgeting Approaches
Considering Competitive Advertising Activity
SOM and SOV
Share of Market (SOM): proportion of overall product category sales
Share of voice (SOV): proportion of overall advertising expenditures in a product category
-> SOM and SOV are usually uncorrelated (two way causality)
Budgeting Approaches
Considering Competitive Advertising Activity
SOM and SOV
Strategies
- high competitors SOV, own SOM low
- > find a defensive niche and decrease advertising
- high competitors SOV, own SOM high
- > increase advertising to defend position
- low competitors SOV, own SOM high
- > attach with large SOV premium
- low competitor’s SOV, own SOM low
- > maintain a modest advertising premium
