Chapter 7

Establishing Objectives and

Budgeting for the Promotional
Program

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 Learning Objectives 1 of 2
LO1 Discuss the value of setting objectives for
advertising and promotion.
LO2 Describe the relationship between promotional
objectives and marketing objectives.
LO3 Discuss sales-oriented objectives.
LO4 Compare the value of sales objectives and
communications objectives as goals for
promotional programs.

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 Learning Objectives 2 of 2
LO5 Describe the process of budgeting for IMC.
LO6 Compare the economic and sales response
perspectives on budgeting.
LO7 Compare different methods of setting budgets.

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 The Value of 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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 Determining Integrated Marketing
Communications Objectives
Marketing Objectives Integrated Marketing
– Identify what is to be Communications Objectives
accomplished by the – Statements of what
overall marketing various aspects of the IMC
program program will accomplish
– Defined in terms of – Based on the particular
specific and measurable communications tasks
outcomes required to deliver the
– Must be quantifiable, appropriate messages to
realistic, and attainable the target audience

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 Sales versus Communications Objectives 1 of 4
Sales-Oriented Objectives
– Aim to increase sales
– Require economic justification
– Required to produce quantifiable results
– Based on the achievement of sales results

Source: The Coca-Cola Company

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 Figure 7-1 Factors Influencing Sales

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 Sales versus Communications Objectives 2 of 4
Sales-Oriented Objectives continued
– 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.
• Sales objectives do not offer much guidance for planning and
developing the promotional program.

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 Sales versus Communications Objectives 3 of 4
Communications Objectives
– Provide relevant information
– Create favorable predispositions
toward the brand
– Set using models wherein
consumers pass through three
stages

Source: Consolidated Edison Co. of New York, Inc.

• Cognitive
• Affective
• Conative

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 Figure 7-2 Communications Effects Pyramid

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 Sales versus Communications Objectives 4 of 4
Communications Objectives continued
– 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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 DAGMAR: An Approach to Setting Objectives 1 of 3
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
– Action

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 DAGMAR: An Approach to Setting Objectives 2 of 3
Characteristics of Objectives
– Present concrete and measurable tasks
– Have a 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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 DAGMAR: An Approach to Setting Objectives 3 of 3
Assessment of DAGMAR
– Criticism of DAGMAR
• Problems with the response hierarchy
– Consumers do not always follow this sequence.
• Sales objectives
– Some only view advertising as effective if it increases sales.
• Practicality and costs
– It is difficult to implement and expensive.
• Inhibition of creativity
– It imposes too much structure and stifles creativity.

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 Problems in Setting Objectives 1 of 2
Improving Promotional Planners’ Use of Objectives
– Top management often only has an abstract idea of what
the firm’s IMC program is supposed to be doing.
Setting Objectives for the IMC Program
– Traditionally, advertising has been the major way of
communicating with target audiences
– Other promotional-mix elements are used intermittently.
– Traditional models (e.g., DAGMAR) have been dominant

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Figure 7-4 Traditional Advertising-Based View of
Marketing Communications

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 Problems in Setting Objectives 2 of 2
Setting Objectives for the IMC Program continued
– 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 7-5 Objectives and Strategies in the
Social Consumer Decision Journey

Sources: Expert interviews; McKinsey analysis.

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 Establishing and Allocating the Promotional Budget 1 of 11
Establishing the 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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Source: G. Tellis and K. Tellis, “Research on Advertising in a Recession,” Journal

of Advertising Research 49, no. 3 (2009), pp. 304–27.
Figure 7-7 Conclusions on Research of Advertising in a Recession
 Establishing and Allocating the Promotional Budget 2 of 11
Establishing the Budget continued
– 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 7-8 Marginal Analysis

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Figure 7-9 Advertising Sales/Response Functions

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Figure 7-10 Factors Influencing Advertising Budgets

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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 Figure 7-11 Factors Considered in Budget Setting

Factor Percent
Changes in advertising strategy and/or creative approach 51
Competitive activity and/or spending levels 47
Profit contribution goal or other financial target 43
Level of previous year’s spending, with adjustment 17
Senior management dollar allocation or set limit 11
Volume share projections 8
Projections/assumptions on media cost increases 25
Modifications in media strategy and/or buying techniques 17

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 Figure 7-12 Top-Down versus Bottom-Up
Approaches to Budget Setting

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 Establishing and Allocating the Promotional Budget 3 of 11
Budgeting Approaches
– Top-Down Approaches
• Affordable method
– Firm determines the amount to be spent in various areas.
• Arbitrary allocation
– Budget determined by management 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.

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 Establishing and Allocating the Promotional Budget 4 of 11
Budgeting Approaches continued
– Top-Down Approaches continued
• Competitive parity method
– Budget amounts 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 7-13 Alternative Methods for Computing
Percentage of Sales

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 Figure 7-15 Investments Pay Off in Later Years

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 Figure 7-16 Competitors’ Advertising Outlays Do Not Always Hurt

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 Figure 7-18 The Objective and Task Method

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 Establishing and Allocating the Promotional Budget 5 of 11
Budgeting Approaches continued
– Build-Up Approaches
• Objective and Task Method
– Advantage: Budget is driven by the objectives to be attained
– Disadvantage: Difficult to determine which tasks will be
required and the costs associated with each

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 Establishing and Allocating the Promotional Budget 6 of 11
Budgeting Approaches continued
– Build-Up Approaches continued
• Payout Planning
– 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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 Establishing and Allocating the Promotional Budget 7 of 11
Budgeting Approaches continued
– Build-Up Approaches continued
• 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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 Establishing and Allocating the Promotional Budget 8 of 11
Budgeting Approaches continued
– 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.
• Consistently evaluate effectiveness of program.

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 Figure 7-21
How
Advertising and
Promotions
Budgets Are
Set

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 Establishing and Allocating the Promotional Budget 9 of 11
Allocating the Budget
– Factors to Consider
• Allocating to IMC elements
• Client/agency policies
• Market size
• Market potential
• Market share goals

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 Figure 7-23 The Share of Voice (SOV) Effect and
Ad Spending: Priorities in Individual Markets

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 Establishing and Allocating the Promotional Budget 10 of 11
Allocating the Budget continued
– Economies of Scale in Advertising
• Set of advantages that allows firms to spend less on advertising
and realize a better return
– Large market share
– Better advertising rates
– Declining average costs of production
– Ability to advertise several products jointly
– More favorable time and space positions
– Cooperation of middle people
– Favorable publicity

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 Establishing and Allocating the Promotional Budget 11 of 11
Allocating the Budget continued
– 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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