Advertising&SalesPromotionLecture3AdvertisingManagementOverviewAndCampaignPlanningShimpchapter7Yeshin

chapters4to81Understandthemagnitudeofadvertisingandthepercentageofsalesrevenuecompaniesinvestinthismarcomtool.Appreciatethatadvertisingcanbeextraordinarilyeffectivebutthatthereisriskanduncertaintywheninvestinginthispractice.Recognizethevariousfunctionsthatadvertisingperforms.Exploretheadvertisingmanagementprocessfromtheperspectiveofclientsandtheiragencies.ChapterObjectives

Afterreadingthischapteryoushouldbeableto:?2010South-Western,apartofCengageLearning.Allrightsreserved.7–22Understandthefunctionsagenciesperformandhowtheyarecompensated.Exploretheissueofwheninvestinginadvertisingiswarrantedandwhendisinvestingisjustified.Examineadvertisingelasticityasameansforunderstandingthecontentionthat“strongadvertisingisadepositinthebrandequitybank.”ChapterObjectives(cont’d)

Afterreadingthischapteryoushouldbeableto:?2010South-Western,apartofCengageLearning.Allrightsreserved.7–33IsAdvertisingRocketScience?“Thetruthisthatadvertisingisharderthanrocketscience.It’snewswhenarocketlaunchfails.It’snewswhenan

adcampaignlaunchsucceeds.”4IntroductionAdvertisingDefinedApaid,mediatedformofcommunicationfromanidentifiablesource,designedtopersuadethereceivertotakesomeaction,noworinthefutureTypesofAdvertisingBusinesstoConsumer(B2C)BusinesstoBusiness(B2B)5Figure7.1ExampleoftheUseofHumorinB2BAdvertising6TheMagnitudeofAdvertising

that’s$360,000,000,000!!!UnitedStates:

$294billion

($1,000perperson)Global:

$360billion7UKAdSpendPatternsUKadspendpatterns2008&2009:SeeAlso8Table7.1Top20SpendersinU.SAdvertising,2006($million)9TheMagnitudeofAdvertising(cont’d)Advertising-to-SalesRatiosAdvertisingasapercentageofsalesrangesfromalowof1.3%toahighof29.9%Ratiostypicallyrangefrom2%to10%withanaverageof3.1%acrossmostB2CandB2BcategoriesCompetitionfromlargerfirmsforcessmallercompaniestohavehigherratiosPersonalcareproductsbasedonimagehavehighratios10Table7.2aAdvertising-to-SalesRatiosforSelectProductCategories11Table7.2bAdvertising-to-SalesRatiosforSelectProductCategories12Table7.2cAdvertising-to-SalesRatiosforSelectProductCategories13TheMagnitudeofAdvertising(cont’d)AdvertisingEffectsAreUncertainAdvertisingisnotjustacurrentexpensebutratherisaninvestmentAdvertisingshouldnotbemanagedasadiscretionaryvariablecostAdvertisingshouldnotbethefirstreductionwhenfinancialpressurescallforcost-cuttingmeasures.ConsistentinvestmentspendingisthekeyfactorunderlyingsuccessfuladvertisingStoppingadvertisingcancauseabrandtolosemarketmomentum,reducingitsequityandmarketshare14AdvertisingFunctionsInfluencingInformingAssistingOther

CompanyEffortsAddingValueRemindingand

IncreasingSalience15AdvertisingFunctionsInformingMakingconsumersawareofnewbrands.IncreasingTOMA(TopofMindAwareness)Teachingnewusesforexistingbrands(calledusageexpansionadvertising)InfluencingGettingprospectivecustomerstotryadvertisedproductsandservices:CreatingprimarydemandBuildingsecondarydemand16AdvertisingFunctions(cont’d)RemindingandIncreasingSalienceEnrichingthememorytraceforabrandsothatthebrandcomestomindinrelevantchoicesituationsIncreasingcustomers’interestinmaturebrandsandthelikelihoodofchoosingbrandsthatmighthaveotherwisenotbeenchosen.Influencebrandswitchingbyremindingconsumersthatthebrandisavailableandthatitpossessesfavorableattributes.17AdvertisingFunctions:

AddingValueInnovatingImprovingQualityAlteringPerceptionsAddingValue

by18AdvertisingFunctions(cont’d)UsingAdvertisingtoAssistOtherCompanyEffortsTodelivercouponsandsweepstakesToassistsalesrepresentativesTopre-sellafirm’sproductsbyintroducingtheproductandlegitimizingsalespeople’sclaimsToaugmenttheeffectivenessofpricedeals19Figure7.2TheAdvertisingManagementProcess20StrategicAdvertisingAlternativesIn-houseAdvertising

OperationPurchaseServices

AsNeededUseaaFull-Service

AdvertisingAgencyAdvertisingFunction

Alternatives21Table7.3Top-10U.S.AdvertisingAgenciesinAdRevenue,200622Top10Agencies23AdvertisingFunctionAlternativesIn-HouseAdvertisingOperationNecessitatesemployinganadvertisingstaffandabsorbing

theoperationcostsUnprofitableunlessacompanydoesalargeamountofcontinualadvertising24AdvertisingFunctionAlternativesPurchaseServicesàlaCarteAdvantagesUseservicesonlywhentheyareneededAvailabilityofhigh-calibercreativetalentPotentialcostefficienciesDisadvantagesLackcostaccountabilityFinancialinstabilityofsmallerboutiques25AdvertisingFunctionAlternativesFull-ServiceAdvertisingAgencyAdvantagesAccesstoin-depthknowledgeandskillsObtainingnegotiatingleveragewiththemediaCoordinatingadvertisingandmarketingeffortsDisadvantagesSomecontrolofadvertisingfunctionislostLargerclientsarefavoredoversmallclientsOccasionallyinefficientinmediabuying26AdvertisingAgencyOrganizationCreativeServicesDevelopadvertisingcopyandcampaignsCopywriters,productionpeople,andcreativedirectorsMedia

ServicesSelectingthebestadvertisingmediaMediaplannersdevelopoverallmediastrategyMediabuyersprocuretheselectedmediaResearchServicesStudyclients’customers’buyinghabits,purchasepreferences,andresponsivenessFocusgroups,mallintercepts,acquisitionofsyndicatedresearchdataAccountManagementLinktheagencywiththeclientActasliaisonssothattheclientdoesnotneedtointeractdirectlywithseveraldifferentservicedepartmentsandspecialists27AgencyCompensationCommissions

fromMediaLabor-based

FeeSystemOutcome-or

Performance-based

ProgramsAgency

Compensation

MethodsOrperhapsahybridofthese?28Ad-InvestmentConsiderationsIsTheMoneyInvestedinAdvertisingWarranted?Profit=Revenue–ExpensesRevenue=Price×VolumeVolume=Trial+Repeat29Ad-InvestmentConsiderations:WhichPositionIsMoreAcceptable?TheCaseforInvestingAdvertisingcanincreaseprofitabilitybyincreasingsalesvolume,enablinghighersellingprices,andthusincreasingrevenuebeyondtheincrementaladvertisingexpense.TheCaseforDisinvestingFirmschoosetoreduceadvertisingexpenseseitherwhenabrandisperformingwellorduringeconomicrecessioninthebeliefthatanexpensereduction,withallelseheldconstant,willresultinincreasedprofits.30AdvertisingversusPricingElasticityElasticityAmeasureofhowresponsivethedemandforabrandistochangesinmarketingvariablessuchaspriceandadvertisingCalculatingelasticitycoefficientsforprice(EP)andadvertising(EA):EP= Percentagechangeinquantitydemanded PercentagechangeinpriceEA= Percentagechangeinquantitydemanded Percentagechangeinadvertising31AdSpend

SalesIncrease

QQ￡￡32AdvertisingandPriceElasticityCombinationsSituationStrategyConsumershavewell-establishedbrandpreferencessuchasduringthedeclinestageofaproduct’slifecycleorinnichemarketsMaintainthestatusquoforpresentpriceandadvertisinglevelsbecausedemandisneitherverypriceelasticoradvertisingelasticMarketisnewproducts,luxurygoods,andproductscharacterizedbysymbolismandimageryBuildimageviaincreasedadvertisingbecausedemandismoreadvertisingelasticthanpriceelasticMarketisamatureconsumergoodsmarketwhereconsumershavecompleteinformationaboutmostbrandsinthecate