Chapter 4

Establishing
Objectives
and Budgeting for
the
Promotional
Program

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
 Learning Objectives

▪ To recognize the importance and value of

setting specific objectives for advertising and
promotion
▪ To understand the role objectives play in the
IMC planning process and the relationship of
promotional objectives to marketing objectives
▪ To know the differences between sales and
communications objectives and the issues
regarding the use of each

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 Learning Objectives

▪ To recognize some problems marketers

encounter in setting objectives for their IMC
programs
▪ To understand the process of budgeting for
IMC
▪ To understand theoretical issues involved in
budget setting
▪ To know various methods of budget setting

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 Content

▪ 4.1 Establishing Objectives

▪ 4.2 Determining Integrated Marketing
Communications Objectives
▪ 4.3 Sales versus Communications
Objectives
▪ 4.4 Establishing the Promotional Budget

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 4.1 Establishing Objectives
▪ Communications
‒ Objectives facilitate coordination of the various
groups
▪ Planning and decision making
‒ Objectives guide decision making and
development of the integrated marketing
communications plan
▪ Measurement and evaluation of results
‒ Objectives provide a benchmark to measure
success or failure
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 4.2 Determining Integrated Marketing
Communications Objectives
Marketing Objectives versus Integrated Marketing
Communications Objectives
Integrated marketing
Marketing objectives
communications objectives
• Identify what is to be • Statements of what various
accomplished by the overall aspects of the IMC program will
marketing program accomplish
• Defined in terms of specific and • Based on the particular
measurable outcomes communications tasks required to
• Must be quantifiable, realistic, deliver the appropriate messages
and attainable to the target audience

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 4.3 Sales versus
Communications Objectives

Sales-Oriented Objectives

▪ Aim to increase sales

▪ Require economic justification
▪ Required to produce quantifiable results
▪ Based on the achievement of sales results

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 Figure 4.1 - Factors Influencing
Sales

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 Problems with Sales Objectives

Successful implementation requires all

marketing elements to work together

Advertising has carryover effect

• Carryover effect: Monies spent on advertising do not have

immediate impact on sales

It is difficult to determine precise relationship

between advertising and sales

Do not offer much guidance for planning and

developing promotional program

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 Communications Objectives

▪ Provide relevant information

▪ Create favorable predispositions toward the
brand
▪ Set using models wherein consumers pass
through three stages
‒ Cognitive
‒ Affective
‒ Conative

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 Figure 4.2 - Communications
Effects Pyramid

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 Problems with Communications
Objectives

▪ Translating sales goals into communications

objectives
‒ Promotional planners have difficulty estimating
what constitutes adequate levels of awareness,
knowledge, liking, preference, or conviction
‒ No formulas or guidelines

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 Defining Advertising Goals for Measured
Advertising Results (DAGMAR)

▪ Communications effects are the logical basis

for advertising goals and objectives to
measure success or failure
▪ Communications task
‒ Performed by and attributed to advertising
rather than marketing factors, includes
following stages
‒ Awareness, comprehension, conviction, and action

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 Characteristics of Objectives

▪ Present concrete and measurable tasks

▪ Have well-defined target audience
▪ Take into consideration the benchmark and the
degree of change sought
‒ Benchmark measures: Determine target
market’s present position regarding the various
response stages
▪ Specify the time period in which the goals must
be accomplished
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 Criticisms of DAGMAR

Problems with the response hierarchy

Sales objectives

Practicality and costs

Inhibition of creativity

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 Figure 4.4 - Traditional Advertising-Based
View of Marketing Communications

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 Zero-Based Communications
Planning

▪ Involves determining:
‒ What tasks need to be done
‒ Which marketing communications functions
should be used and to what extent
▪ Focuses on the task to be done and searches
for the best ideas and media to accomplish

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 Figure 4.5 - Objectives and Strategies in
the Social Consumer Decision Journey

Source: Expert interviews; McKinsey analysis

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 Figure 4.7 - Conclusions on Research of
Advertising in a Recession

Source: G. Tellis and K. Tellis, “Research on Advertising in a Recession,” Journal of Advertising Research 49, no.3 (2009), pp. 304–27.0

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 4.4 Establishing the Promotional
Budget

▪ Formulated when:
‒ A new product is introduced
‒ Internal or external factors necessitate a
change to maintain competitiveness
▪ Established using economic theory, marginal
analysis, and contribution margin
‒ Contribution margin: Difference between the
total revenue generated by a brand and its total
variable costs
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 Marginal Analysis

▪ Increase in advertising/promotional
expenditures increases sales and gross
margins to a point, after which they level off
▪ Weaknesses - Assumes that sales are:
‒ A direct measure of advertising and promotions
efforts
‒ Determined solely by advertising and promotion

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 Figure 4.8 - Marginal
Analysis

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 Figure 4.9 - Advertising Sales/Response
Functions

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 Figure 4.10 - Factors Influencing
Advertising Budgets

Note: 1 relationship means the factor leads to a positive effect of advertising on sales;
2 relationship indicates little or no effect of advertising on sales.

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 Figure 4.11 - Factors
Considered in Budget Setting

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 Figure 4.12 - Top-Down versus Bottom-
Up Approaches to Budget Setting

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 Budgeting Approaches: Top-
Down Approaches
Affordable method
•Firm determines the amount to be spent in various areas
Arbitrary allocation
•Budget is determined by management solely on the basis of what is felt to be necessary

Percentage-of-sales method
•Advertising and promotions budget is based on sales of the product

Competitive parity method

•Budget amounts are established by matching the competition’s percentage-of-sales
expenditures
•Clipping service: Clips competitors’ ads from local print media

ROI budgeting method

•Advertising and promotions are considered investments, and are expected to earn a certain
return
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 Figure 4.13 - Alternative Methods for
Computing Percentage of Sales

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 Figure 4.15 - Investments Pay
Off in Later Years

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 Figure 4.16 - Competitors’ Advertising
Outlays do not Always Hurt

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 Figure 4.18 - The Objective and
Task Method

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 Objective and Task Method

▪ Advantage
‒ Budget is driven by the objectives to be
attained
▪ Disadvantage
‒ Difficult determine which tasks will be required
and the costs associated with each

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 Payout Plan

▪ Determines the investment value of the

advertising and promotion appropriation
▪ Projects the revenues a product will generate,
as well as the costs it will incur
▪ Better and logical approach to budget setting
than the top-down approach

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 Quantitative Models

▪ Employ computer simulation models involving

statistical techniques
‒ Computer simulation models: Help determine
the relative contribution of the advertising
budget to sales

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 Steps to Develop and Implement
the Budget

Employ comprehensive strategy

Develop strategic planning framework that employs an

integrated marketing communications philosophy

Develop contingency plans

Focus on long-term objectives

Evaluate effectiveness of programs have to be

consistently

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 Figure 4.21 - How Advertising
and Promotions Budgets Are Set

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 Budget Allocation: Factors to
Consider

Allocating to IMC elements

Client/agency policies

Market size

Market potential

Market share goals

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 Figure 4.24 - The Share of Voice (SOV)
Effect and Ad Spending: Priorities in Individual
Markets

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 Economies of Scale

Set of advantages that allows firms to spend less on

advertising and realize a better return

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 Organizational
Characteristics
▪ Factors that influence advertising and
promotion budgets
‒ Organizational structure
‒ Power and politics
‒ Use of expert opinions
‒ Characteristics of the decision maker
‒ Approval and negotiation channels
‒ Pressure on senior managers to arrive
at the optimal budget

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 Case study

▪ Setting Objectives for the IMC Program

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