ADVERTISING:

Establishing Objectives

General Budget Strategies

1. Top Down
2. Bottom up (Goal Based) 3. Return on Investment

1. Top-Down Budget

Top Management Sets the Spending Limit

The Promotion Budget Is Set to Stay Within the Spending Limit

2. 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

Goal Based Budgeting:

The DAGMAR Approach Define Advertising Goals for Measuring Advertising Results

Communications Effects Pyramid

5% Use 20% Trial 25% Preference 40% Liking 70% Knowledge 90% Awareness

Setting Objectives
Specific Communications Objectives
Concrete Measurable Tasks Well-Defined Target Audience Existing Benchmark Measure Degree of Change Sought Specific Time Period

Activity

Evaluate the proposed campaign

3. Return on Investment Budget

MARGINAL ANALYSIS

Increase Spending . . . IF:

The increased cost is less than the incremental (marginal) return.

Decrease Spending . . . IF:

The increased cost is more than the incremental (marginal) return.

Hold Spending Level. . . IF:

The increased cost is equal to the incremental (marginal) return.

Marginal Analysis: An Example

Sales

Gross Margin

Ad. Expenditure
$ Profit

Point A Advertising / Promotion in $

The Complication:
Advertising Response Functions
A. Concave-Downward Response Curve

B. S-Shaped Response
Curve

Little Effect

Initial Spending

High Effect

Middle Level

Little Effect

High Spending

Sales

Sales

Advertising Expenditures

Range A

Range B

Range C

Advertising Expenditures

Concave or S-shaped?

Concave or S-shaped?

Quote of the Day

American advertisers rely on essentially

illogical approaches to determine their

advertising budgets.

Michael Schudson (professor)