Establishing Objectives and

Budgeting for the Promotional

Program
Introduction

• Prime issue – determining ROI of expenditures on A&P

• No 100 % agreement - how to measure ROI or even what should be measured

• Success of program - measured by both marketing and communication objectives

• Companies - difficulty with the most critical step – in promotional planning process

• Setting realistic objectives that will guide the development of IMC program
Introduction
• Setting objectives - difficult and complex - must be done properly

• Foundation on which all other promotional decisions are made.

• Budgeting for promotional campaigns evolve from these objectives

• Provide standards against which performance can be measured

Setting Objectives
• Obstacles to setting objectives

• Complex marketing situations

• Conflicting perspectives

• Uncertainty over resources

 Characteristics of Objectives

Attainable

Realistic Measurable
Objectives

Quantifiable Specific
Determining Promotional Objectives

• IMC objectives are statements of what various aspects of the IMC program will
accomplish.
Marketing Versus Communications Objectives

Marketing Objectives Communications Objectives

• Generally stated in the • Derived from the overall

firm’s marketing plan marketing plan
• Achieved through the • More narrow than
overall marketing plan marketing objectives
• Quantifiable, such as sales, Vs. • Based on particular
market share, ROI communications tasks
• To be accomplished in a • Designed to deliver
given period of time appropriate messages
• Must be realistic and • Focused on a specific target
attainable to be effective audience
Advertising and Movement Toward Action

Conative Point of purchase

Purchase Retail store ads, Deals
Realm of motives. “Last-chance” offers
Ads stimulate or direct Price appeals, Testimonials
desires. Conviction

Competitive ads
Affective Preference Argumentative copy
Realm of emotions.
Ads change attitudes and “Image” copy
Liking Status, glamour appeals
feelings

Announcements
Knowledge Descriptive copy
Cognitive Classified ads
Realm of thoughts. Slogans, jingles
Ads provide information
Awareness Teaser campaigns
and facts.
Communications Effects Pyramid

5% Use

20% Trial

25% Preference

40% Liking

70% Knowledge

90% Awareness
The DAGMAR: An Approach to Setting Objectives

Define Awareness

Advertising Comprehension
Goals for
Measuring Conviction
Advertising
Results Action
The DAGMAR
• Setting objectives and assessing the effectiveness of promotional campaigns.

• Awareness: making the consumer aware of the existence of the brand or company

• Comprehension: understanding what the product is and what it will do for the consumer

• Conviction: developing a mental disposition in the consumer to buy the product

• Action: getting the consumer to purchase the product

 Characteristics of Objectives

Concrete, Well-defined
measurable tasks audience

Benchmark measures Specified time period

 Balancing Objectives and Budgets

What we’re willing What we need to

and able to spend achieve our
objectives
Dollars Goals
 Establishing the Budget

How much should we To whom should we

spend on advertising allocate the money?
and promotion?
 Marginal Analysis

Sales Gross Margin

Sales in Rs

Ad. Expenditure

Profit
Point A

Advertising / Promotion in Rs
 Weaknesses of Marginal Analysis

Sales are a direct Sales are determined

measure of advertising solely by advertising
and promotions and promotion.
efforts.
 Sales Response Models

A. Concave-Downward B. S-Shaped Response

Response Curve Function
Incremental Sales

Incremental Sales
Initial Spending

High Spending
Middle Level

Little Effect
Little Effect

High Effect
Range A Range B Range C
Advertising Expenditures Advertising Expenditures
Concave-Downward Response Curve

• Assumption - effects of advertising spending follows law of diminishing returns.

• As the amount of advertising increases, its incremental value decreases.

• Logic - those with the greatest potential to buy will likely act on the first (or
earliest) exposures,
• while those less likely to buy are not likely to change as a result of the advertising.
S-shaped response function
• Assumption - initial outlays of the advertising budget have little impact (range A).

• After certain budget level has been reached (range B), advertising and promotional
efforts begin to have an effect, and additional expenditures result in increased sales.

• When advertising expenditures enter range C, however, incremental spending will

have little additional impact on sales.
Factors Influencing Advertising Budgets

Product Product
life cycle qualities

Product Product
durability price

Purchase
Differentiation frequency
 Top-Down Budgeting

Top Management Sets the Spending Limit

The Promotion Budget Is Set to Stay Within the Spending

Limit
 Top-Down Budgeting Methods

Competitive
Parity

Arbitrary Percentage
Allocation Top of Sales
Management

Return on Affordable
Investment Method
 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

Promotional Budget: Practical Approach

Build-up Budgeting
Promotion objectives are set
• Objective and task method**
Activities needed to achieve • Payout planning
objectives are planned
• Quantitative models
Costs of promotion activities
are budgeted

Total promotion budget is

approved by top management
Objective and Task Method

• Define communications objectives to be accomplished

• Determine specific strategies and tasks needed to attain them

• Estimate costs associated with performance of these strategies and tasks

Quantitative Models

Computer Simulation
Other Budget Allocation Factors

• Budgeting Factors

• Client/agency policies

• Market size

• Market potential

• Market share goals

Organizational Characteristics
• Factors that influence advertising and promotion budgets
• The organization’s structure

• Power and politics

• The use of expert opinions

• Characteristics of the decision maker

• Approval and negotiation channels

• Pressure on senior managers to arrive at the optimal budget