adv3008 ch 8 – Flashcards

-In consumer goods marketing, increases in market share are closely related to increases in the marketing budget. And market share is a prime indicator of profitability. -Sales normally increase with additional advertising. At some point, however, the rate of return plateaus and then declines. -Sales response to advertising may build over time, but the durability of advertising is brief, so a consistent investment is important. -Advertising expenditures below certain minimum levels have no effect on sales. -Some sales will occur even if there is no advertising. -Culture and competition impose saturation limits above which no amount of advertising can increase sales.

quality perceptions, word of mouth, the introduction of new products, competitive trade promotion, the opening of more attractive outlets, better personal selling, seasonal changes in the business cycle, or shifts in consumer preferences.

long-term

-the percentage of sales, percentage of profit, unit of sale, competitive parity, share of market, and objective/task methods (mostly used for national advertising budgets)

percentage of sales method

A method of advertising budget allocation based on a percentage of last year's sales, anticipated sales for next year, or a combination of the two. Businesspeople like this method because it is simple, it doesn't cost them anything, it is related to revenue, and it is considered safe. - The problem is knowing what percentage to use. -even leaders in the same industry use different percentages. Across industries, promotional expenditures range from just 1.5 percent of sales to more than 22 percent. -Usually the percentage is based on an industry average or on company experience. Unfortunately, it is too often determined arbitrarily. An industry average assumes that every company in the industry has similar objectives and faces the same marketing problems. Company experience assumes that the market is highly static, which is rarely the case. -However, when applied against anticipated future sales, this method often works well. It assumes that a certain number of dollars will be needed to sell a certain number of units. If the company knows what the percentage is, the correlation between IMC spending and sales should remain constant, assuming the market is stable and competitors' spending remains unchanged. And because this method is common in the industry, it diminishes the likelihood of competitive warfare.

stimulate

often miss opportunities for building brand equity or long-term relationships with consumers.

industry IMC

The share of market / share of voice method

- It holds that a company's best chance of maintaining its share of a market is to keep a share of IMC (voice) somewhat ahead of its market share. - A method of allocating advertising funds based on determining the firm's goals for a certain share of the market and then applying a slightly higher percentage of industry advertising dollars to the firm's budget. -- For example, a company with a 30 percent share of the market should spend 35 percent of the industry's promotional dollars. The share of market/share of voice method is commonly used for new product introductions.40 According to this formula, when a new brand is introduced, the budget for the first two years should be about one and a half times the brand's targeted share of the market in two years. This means that if the company's two-year sales goal is 10 percent of the market, it should spend about 15 percent of promotional spending during the first two years. The company's share of all promotional spending is what is meant by "share of voice." To see how this method works, look at the three leading U.S. auto manufacturers in Exhibit 8-9, GM, Ford, and DaimlerChrysler. The domestic market, based on sales of the big three, was about $290 billion. DaimlerChrysler, with almost $80 billion in sales, had roughly 27.6 percent of U.S. auto company sales. What was advertising share of voice? We can see that DaimlerChrysler spent nearly $1.9 billion on advertising, which was only about 24 percent of U.S. automaker expenditures. To grow its market share, a larger share of voice may have been required. An IMC focus helps to remind us that advertising is just one component of IMC, and for some marketers, not the most important one. The top national packaged-goods marketers spend 25 to 30 percent of their marketing budgets on consumer and trade promotion rather than consumer advertising.41 That's how they get more shelf space in the store. And in certain packaged-goods categories, in-store trade promotions may generate 25 percent of a brand's short-term volume, while advertising may be responsible for only 5 percent.42

objective/task method, also known as the budget buildup method

A method of determining advertising allocations, that defines objectives and how advertising is to be used to accomplish them.

1. defining the objectives 2. determining strategy 3. estimating the cost. -After setting specific, quantitative communication objectives, the company develops programs to attain them. If the objective is to increase awareness of Mountain Dew Code Red by 40 percent, PepsiCo determines which campaign approach will work best, how often messages must run, and which media to use. The estimated cost of the program becomes the basis for the budget. Of course, the company's financial position is always a consideration. If the cost is too high, objectives may have to be scaled back. If results are better or worse than anticipated after the campaign runs, the next budget may need revision. The task method forces companies to think in terms of accomplishing goals. Its effectiveness is most apparent when campaign results can be readily measured. The task method is adaptable to changing market conditions and can be easily revised. However, it is often difficult to determine in advance the amount of money needed to reach a specific goal. Techniques for measuring campaign effectiveness still have many weaknesses.

A method of allocating funds for advertising that uses experimentation to determine the best level of advertising expenditure. By running a series of tests in different markets with different budgets, companies determine the most efficient level of expenditure.

The first is that IMC is a result of sales. Marketers know this is not true, yet they continue to use the percentage of sales method. The second fallacy is that IMC creates sales. In certain circumstances (where direct-response messages are used), advertising closes the sale.

reinforce current customers, locate new prospects, position the product competitively, build brand equity, and stimulate demand. It may even stimulate inquiries and product trial and, on the local level, build retail traffic.

plans and budgets.