Advertising Objectives and

Budgeting
VARTIKA SRIVASTAVA
Gillette’s objectives for this campaign are other than generating sales. What objectives might the company
have for this ad? How might its effectiveness be measured? 2
The Value of Objectives

Communications
• Objectives facilitate coordination of the various groups.

Planning and Decision Making

• Objectives guide decision making and development of integrated marketing
communications plan.

Measurement and Evaluation of Results

• Objectives provide a benchmark to measure success or failure.

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Determining Integrated Marketing
Communications Objectives
Marketing Objectives
• Identify what is to be
accomplished by overall marketing
program.
• Defined in terms of specific and
measurable outcomes.
• Must be quantifiable, realistic, and
attainable.
Integrated Marketing
Communications Objectives
• Statements of what various
aspects of IMC program will
accomplish.
• Based on the communications
tasks required to deliver
appropriate messages to target
audience.
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 Sales versus Communications Objectives
Sales-Oriented Objectives
• Aim to increase sales of product or service.
• Require economic justification.
• Required to produce quantifiable results.
• ROI, sales volume.
Coca-Cola increased its ad spending
for the global “Share a Coke”
campaign. While it did not disclose
specific numbers, it did indicate that
it saw a pay-off from the increased
spend.

• Problems with sales objectives.

• Successful implementation requires all marketing elements to work together.
• Advertising has carryover effect:
• Monies spent on advertising do not have immediate impact on sales.
• Difficult to determine precise relationship between advertising and sales.
• Do not offer much guidance for planning and developing promotional programs.
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Factors Influencing Sales

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Sales-Oriented Objectives

Where sales objectives are appropriate.

• Attempts to induce immediate behavioral response from prospective customers.
• Direct-response advertising.
• Retail advertising.
• When advertising plays dominant role in firm’s marketing program and other factors are
relatively stable.

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Sales versus Communications Objectives

Communications Objectives
• Provide relevant information.
• Create favorable predispositions toward the brand.
• The overall goal is increasing brand knowledge,
increasing interest, creating favorable attitudes toward
the product or company, and creating a favorable
company image
• Consumers pass through three stages:
• Cognitive.
• Affective. Vans set different communications
objectives as it grew. Starting as a
• Conative. small storefront in California, Vans is
now a $3 billion international brand
that continues to grow 8
Communications Effects Pyramid

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Communications
Objectives
• 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 set formulas or guidelines.

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DAGMAR: An Approach to Setting
Advertising Objectives

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DAGMAR: Characteristics of
Objectives

Advertising objectives should be

stated in terms of:
• Concrete and measurable tasks.
• Well-defined target audience.
• Benchmark and degree of change sought.
• Benchmark measures: Determine target
market’s present position regarding
response stages.
• Specified time period in which goals must be
accomplished.

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 Hyundai’s objective was on increasing the quality, as well as improving
consumers’ perceptions, of its cars. The Hyundai Sonata is now among the top
of the list of Kelley Blue Book’s highest quality automobiles for midsize cars.

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Criticism of DAGMAR

• Problems with response hierarchy:

• Consumers do not always follow this
sequence.
• Sales objectives:
• Some only view advertising as effective if
it increases sales.
• Practicality and costs:
• Difficult to implement and expensive.
• Inhibition of creativity:
• Imposes too much structure and stifles
creativity.

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 Problems in Setting Objectives

Setting Objectives for the IMC

Program
• Traditionally, advertising
considered major way of
communicating with target
audiences.
• Traditional models (for example,
DAGMAR) have been dominant.
• Inside-out planning.
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Problems in Setting Objectives

• Social consumer decision journey:

• Monitor.
• Respond.
• Amplify.
• Lead.

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Objectives and Strategies in the Social Consumer Decision Journey

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 Establishing the Budget
• Two-way interaction.
• Often viewed as an expense rather than investment.
• Cut budgets in recessions.
• Establish budget using economic theory and marginal analysis (or contribution margin).
• Contribution margin: Difference between total revenue generated by a brand and its total
variable costs.
• 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.
Marginal Analysis

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 Model-Based Analytics are the
core of Marketing Engineering
• What is a Model?
• Stylized representation of reality that is easier to deal with and explore
for a specific purpose than reality itself

• Good managerial decision making is about articulating the

opportunity costs of various actions (including the no-action
option). Opportunity costs can usually be specified only by
articulating a model of what would happen under different
conditions.
• For example, salespeople are taught to “overcome objections” (that is re-
frame the opportunity cost for their customers – e.g., the sale ends
tomorrow!).
19-03-2024 VARTIKA SRIVASTAVA 24
 Process of Model Building:
Key Considerations

Shape: S-shape? Linear? Decreasing returns?

Saturation point? Threshold?

Dynamics: Growth and decline equal?

Delay/carryover effects? Hysteresis?

Interaction: Advertise in strong (or weak markets)?

19-03-2024 VARTIKA SRIVASTAVA 25

Establishing the Budget: Sales response models:

• Concave-downward function
model: As the amount of
advertising increases, its
incremental value decreases.
• S-shaped response curve:
Must meet a certain budget
level, then additional
increments of expenditures
result in increased sales, then
has no additional benefit.
• Weaknesses—limited use to
practitioners for direct
applications.

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 Market Response : ADBUDG model

• Developed by John D C Little, to model the effect of advertising

• The simplicity, robustness and intuitive feel of the model has helped in it
being applied to other elements of the marketing mix.

• Uses Market Share as the output of the market response model

• Uses estimate of “One period response” to build market response model

19-03-2024 VARTIKA SRIVASTAVA 27

 ADBUDG Model Assumptions
• If advertising is cut to zero, brand share will decrease, but there is a floor
(min), on how much share will fall from its initial value by the end of the
period.

• If advertising is increased a great deal, say to something that could be called

saturation, brand share will increase but there is a ceiling (max), on how
much can be achieved by the end of one period.

• There is some advertising rate that will maintain initial share.

• An estimate can be made by data analysis or managerial judgement of the

effect on share by the end of one period of a 20% increase in advertising over
the maintenance rate.
19-03-2024 VARTIKA SRIVASTAVA
 Market Response : ADBUDG model

Ac
Y = b + (a–b)*
d + Ac

S-shaped and concave; saturation effect.

Widely used.

Amenable to judgmental calibration.

19-03-2024 VARTIKA SRIVASTAVA 29

 One Period Response to Marketing Inputs
Current market share with
marketing inputs stabilized at A • For any level of
9.00
marketing input, the
market response attains
the Long Term (steady
8.00 1.5x A

7.00 state) response over a

6.00 period of time.
Market Share

5.00
1.0x A
• ADBUDG model
4.00
focuses on one period
0.5x A response to build the
response function.
3.00

0.0x A
2.00

1.00 One period response

(expanded view in next
0.00
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
slide)
Time
19-03-2024 VARTIKA SRIVASTAVA 30
 Estimating One Period Response
Possible values of
St-1 :MS at t-1 , corresponding to
Market Share

St Max MS possible (a)

with very high adv.)
Advertising rate At-1

MS with 50% incr in

At :Advertising rate in time t
advertising St :MS at t,


Initial MS with current

market advertising
Share; St-1 (maintenance adv.) St will be between b and a, i.e., it
will be: b + fraction*(a-b)
MS with zero The value of the fraction will
advertising (b) depend on At
t- t Time 
1 THIS SHARE-RESPONSE-TO-ADVERTISING
ONE TIME PERIOD CURVE CAN BE REPRESENTED BY ADBUDG
FUNCTION
19-03-2024 VARTIKA SRIVASTAVA 31
 ADBUDG Market Response Model

St=b if At=0, A General one period market

response function for advertising
St= a for At=very high value is given by:
S shaped/concave curve for intervening values
𝐴𝐴𝑐𝑐𝑡𝑡
𝑆𝑆𝑡𝑡 = 𝑏𝑏 + (𝑎𝑎 − 𝑏𝑏)
𝑑𝑑 + 𝐴𝐴𝑐𝑐𝑡𝑡

Max (a) a : Max market share achievable

in one time period for any value of
Share 𝑆𝑆𝑡𝑡 = 𝑏𝑏 + (𝑎𝑎 − 𝑏𝑏)
𝐴𝐴𝑐𝑐𝑡𝑡 A
𝑑𝑑 + 𝐴𝐴𝑐𝑐𝑡𝑡

Min (b) b: Market share achieved in one

time period when A is made 0

Maintenance +50% c, d : Model parameters.

Advertising
Will the shape of the curve be dependent on c? If so, how?
19-03-2024 VARTIKA SRIVASTAVA 32
 Hysteresis Effect
1.4

1.2
Average during
Heavy Advertising
Pretest Average
1

0.8
Sale
s 0.6
Rate
0.4 Heavy
Advertising
0.2

0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
Time (4-week periods)
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 Incorporating Dynamic Effects: Lead/Lag
• Response to changes in (any) marketing effort does not often take place in the same period
• Dynamic effects can be:
• Carry over effects: Effect of current marketing efforts on future sales  This is called
LAG Effects
• Lead effects: Effect of sale in periods prior to change in marketing effort. Arises out of
anticipation of marketing effort. Can you give some examples?
• This is very rare; e.g., Big Billion Day is about to come… so they wont shop today but wait for it; Or if some
insinuation that prices are going to increase
• Carry over effects: the response in period immediately after change in marketing effort
determined by
• Past momentum
• Partial effect of the marketing action

19-03-2024 VARTIKA SRIVASTAVA 35

 Common Types of Carry Over Effects
Spending Level

Marketing Effort Change for a specific

period e.g., sales promotion
Time
‘Delayed response’, Hysteresis effect Sales Response
Sales Response
‘Customer holdout’ This balance is
called residual or
balance effect

Time Time

‘New Trier’, ‘Wear out’ effect ‘Stocking’ effect Sales Response

Sales Response

Time
Time

19-03-2024 VARTIKA SRIVASTAVA 36

Establishing and Allocating the Promotional Budget

• Establishing the Budget continued

• Additional factors in budget setting:
• When using sales as a direct measure of response, various situational factors may have an
effect.
• In percentage-of-sales method, advertising and sales effects may be reversed.

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Factors Influencing Advertising Budgets
Factor Relationship of Factor Relationship of
Advertising/Sales Advertising/Sales

Product Factors Competition:

Basis for differentiation + Active +
Hidden product qualities + Concentrated +
Emotional buying motives + Customer Factors

− Concentration of users +
− Strategy Factors
Purchase frequency Curvilinear Early stage of brand life cycle +
Market Factors Long channels of distribution +
Stage of product life cycle: High prices +

Introductory + High quality +

Growth + Media strategy +
Maturity − Creative strategy +
Decline − Promotional strategy +
Inelastic demand + Cost Factors
Market share − High profit margins +

• Note: + relationship means the factor leads to a positive effect of advertising on sales; – relationship indicates little or no effect of advertising on
sales.
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Budgeting Approaches

• Top-down approaches: Budget set

at top and passed down to various
departments.
• Affordable method:
• Firm determines amount to
be spent in various areas.
• Arbitrary allocation:
• Budget determined by
management on basis of
what is felt to be necessary.

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Top-down Approaches

• Percentage-of-sales method:
• Advertising and promotions
budget based on sales of
product.
• Based on straight percentage or
percentage of unit cost.
• Advantages: financially safe;
keeps ad spending within
reasonable limits; simple,
straightforward, and easy to
implement; generally stable.
• Disadvantages: cause-and-effect
relationship between advertising
and sales; does not allow for
changes in strategy; may have
severe misappropriation of funds;
difficult to employ for new
products; decreased sales
results in decreased budgets.
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Investments Pay Off in Later Years

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Top-Down Approaches
Budget amounts
established by matching
competition’s percentage-
of-sales expenditures.
Competitive parity
method:
Clipping service: Clips
competitors’ ads from
local print media.

Advertising and
promotions are considered
ROI budgeting method:
investments and expected
to earn a certain return.

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 Build-up Approaches

• Build-up approaches: Budget for what is

deemed necessary to attain communications
objectives.

• Objective and task method:

• Isolate objectives.
• Determine tasks required.
• Estimate required expenditures.
• Advantage: Budget driven by objectives
to be attained.
• Disadvantage: Difficult to determine
which tasks will be required and costs
associated with each. 43
The Objective and Task Method

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Build-up Approaches

• Payout planning:
• Determines investment value of advertising and promotion appropriation.
• Projects revenues product will generate, as well as costs it will incur.
• Better and logical approach to budget setting than top-down approach.

Example of Three-Year Payout Plan

Product sales 15.0 35.50 60.75
Profit contribution (@ $0.50/case) 7.5 17.75 30.38
Advertising/promotions 15.0 10.50 8.50
Profit (loss) (7.5) 7.25 21.88
Cumulative profit (loss) (7.5) (0.25) 21.63

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Build-up Approaches

• Quantitative models:
• Employ computer simulation models involving statistical techniques.
• Computer simulation models: Help determine relative contribution of the advertising budget to
sales.

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