Chapter Eight Overview of Advertising Management Chapter Eight

Chapter Eight Overview of Advertising Management

Chapter Eight Objectives • Explain why advertising is an investment in brand equity bank • Describe the functions of advertising • Understand the role for advertisement objectives and the requirements for setting good objectives • Describe the hierarchy-of-effects model and its relevance for setting advertising objectives

Chapter Eight Objectives • Explain the distinction between direct and indirect advertising objectives • Understand the role of sales as an advertising objective and the logic of “vaguely right versus precisely wrong” thinking

Chapter Eight Objectives • Understand the nature and importance of advertising budgeting • Explain the relation between a brand’s share of market (SOM) and share of voice (SOV) • Explain the various rules of thumb, or heuristics, that guide practical advertising budgeting

Ad-Investment Consistent investment spending is the key factor underlying successful advertising.

Arguments for Investing in Advertising • Investment in advertising requires that incremental revenue > advertising expense

Arguments for Disinvesting in Advertising • Decreased expenses in advertising mean increased profits (everything else held equal)

Investment in the Brand Equity Bank • “Strong advertising represents a deposit in the brand equity bank. ” • Strong- that is, different, unique, clever, memorable

Advertising Functions Informing Persuading Reminding Adding Value Assisting Other Company Efforts

Advertising Functions Informing • Makes consumers aware, educates them about the features and benefits, and facilitates the create the creation of positive brand images • Facilitates the introduction of new brands and increases demand for existing brands • Performs another information role by teaching new uses for existing brands (Usage expansion advertising)

Advertising Functions Persuading • Persuades customers to try advertised products and services • Primary demand creating demand for an entire product category • Secondary demand the demand for a specific company’s brand

Persuading Gillette MACH 3

Advertising Functions Reminding • Keeps a company’s brand fresh in the consumer’s memory • Influences brand switching by reminding consumers who have not recently purchased a brand that the brand is available and that it possesses favorable attributes

Advertising Functions Adding Value • Three basic ways by which companies can add value » innovating » improving quality » altering consumer perceptions • Advertising adds value to brands by influencing consumers’ perceptions

Advertising Functions Assisting Other Company Efforts • Advertising is just one member of the marketing communications team • Sometimes, an assister that facilitates other company efforts in the marketing communications process

The Advertising Management Process Advertising Strategy • Setting Objectives • Formulating Budgets • Creating Ad messages • Selecting Ad Media and Vehicles Strategy Implementation Assessing Ad Effectiveness

Setting Advertising Objectives • Expression of management consensus • Guides the budgeting, message, and media aspects of advertising strategy • Provide standards against with results can be measured

The Hierarchy of Effects ¨ The hierarchy of effects metaphor implies that for advertising to be successful it must move consumers from one goal to the next goal

A Hierarchy Model of How Advertising Works

The Hierarchy of Effects The hierarchy of effects

Setting Good Advertising Objectives • Include a precise statement of who, what, and when • Be quantitative and measurable • Specify the amount of change • Be realistic • Be internally consistent • Be clear and put it in writing

Sales Volume as an Advertising Objective Traditional View • Sales volume is the consequence of a host factors in addition to advertising • Effect of advertising is delayed

Sales Volume as an Advertising Objective Heretical View • Advertising’s purpose is to generate sales • Sales measures are “vaguely right”

The Logic of Vaguely Right Vs. Precisely Wrong Thinking Vaguely Measurement Accuracy Issue Right Versus Precisely Wrong Choice of Objective Issue

Advertising Budgeting in Theory • The best(optimal) level of any investment is the level that maximizes profits(MR=MC) • Advertisers should continue to increase their advertising investment as long as it is profitable to do so MC MR = (Change in total cost) = (Change in total Revenue) (Change in quantity) = TC/Q = TR/Q

Budgeting Considerations in Practice • What is the Ad objective? • How much are competitors spending? • How much money is available?

Budgeting Methods • Percent-of-Sales Budgeting • Objective-and-Task Method • Competitive Parity Method (match competitors method) • Affordability Method

Percentage-of-Sales Budgeting • A company sets a brand’s advertising budget by simply establishing the budget as a fixed percentage of past or anticipated sales volume • Criticized as being illogical Sales=f(Advertising) (o) Advertising=f(Sales) (x)

Objective-and-Task Method • The most sensible and defendable advertising budgeting method • Specify what role they expect advertising to play for a brand then set the budget accordingly

The Competitive Parity Method • Sets the ad budget by basically following what competitors are doing

Affordability Method • Only the funds that remain after budgeting for everything else are spent on advertising • Only the most unsophisticated and impoverished firms • However, affordability and competitive considerations influence the budgeting decisions of all companies