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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

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chapter eight objectives
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 objectives3
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 objectives4
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
Ad-Investment

Consistent investment spending is the key factor underlying successful advertising.

arguments for investing in advertising
Arguments for Investing in Advertising
  • Investment in advertising requires that incremental revenue > advertising expense
arguments for disinvesting in advertising
Arguments for Disinvesting in Advertising
  • Decreased expenses in advertising mean increased profits (everything else held equal)
investment in the brand equity bank
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
Advertising Functions

Informing

Persuading

Reminding

Adding Value

Assisting Other Company Efforts

advertising functions10
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 functions11
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
Persuading

Gillette MACH3

advertising functions13
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 functions14
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 functions15
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
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
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
  • The hierarchy of effects metaphor implies that for advertising to be successful it must move consumers from one goal to the next goal
the hierarchy of effects20
The Hierarchy of Effects

The hierarchy

of effects

setting good advertising objectives
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
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 objective23
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
The Logic of Vaguely Right Vs. Precisely Wrong Thinking

Vaguely

Right

Choice of

Objective

Issue

Measurement

Accuracy

Issue

Versus

Precisely

Wrong

advertising budgeting in theory
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

= (Change in total cost)

(Change in quantity)

= TC/Q

MR

= (Change in total Revenue)

(Change in quantity)

= TR/Q

budgeting considerations in practice
Budgeting Considerations in Practice
  • What is the Ad objective?
  • How much are competitors spending?
  • How much money is available?
budgeting methods
Budgeting Methods
  • Percent-of-Sales Budgeting
  • Objective-and-Task Method
  • Competitive Parity Method

(match competitors method)

  • Affordability Method
percentage of sales budgeting
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
Objective-and-Task Method
  • The most sensible and defendable advertising budgeting method
  • Specify what role they expect advertising to play for a brand and then set the budget accordingly
the competitive parity method
The Competitive Parity Method
  • Sets the ad budget by basically following what competitors are doing
affordability method
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