Half of the advertising-expenditure is wasted;

one doesn’t know which half!

Advertising Decisions
Presented by
-Nikunj
-Remya
 Overview
• Advertising: Advertising is any paid form of
non personal presentation and promotion
of ideas, goods, or services by an identified
sponsor.

• Measure of success for an Ad is based on

the sales and profits generated in the short
and/or long run.

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 Different elements of
communications mix/
Communications strategies
• Advertising
• Public relations (PR)
• Sales Promotion
• Direct marketing
• Packaging & graphics

Decisions regarding these communications

mix elements are often made independently
by different people and organizations.
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 Integrated marketing
communications approach
• Consistent communications mix is referred to as
integrated marketing communications.

• In an IMC approach, the manager specifies the problem

to be solved and coordinates the necessary
communications.

• IMC assumes that a combination of activities does better

than any one alone.

• The objective of communications is common to all

elements of integrated communications program.

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 Advertisement planning process &
PM’s responsibilities
• Developing the marketing plan and setting the budget

• Planning the advertising (identifying the target audience,

developing the general advertising strategy and message)

• Copy development and approval (working with the ad agency to

test different advertising copy and the media plan)

• Execution

• Monitoring response (response of advertising)

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Areas that are critical for a
PM to manage

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 1. The target audience
• Starting point in the overall marketing strategy.

• Choice of the primary target audience depends to a

large extend on
– Who is most influential in the decision process
– Who you think you can influence

• Selecting a target audience e.g. New microprocessor

for a PC (four target audience: Engineers, production
supervisors, production workers and managers)

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 Target audience Contd…
• The target audience is described in terms
of
– Product category (e.g. heavy users, nonusers)
– Current product usage (e.g. users of product
X, users of our product)
– Product behavior ( e.g. current customers,
competitor’s customers or non customers)
– Specific terms (e.g. demographics)

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 2.Setting advertising
objectives
Customer-Focused Objectives
• Most obvious objective: To increase sales and profits

• Advertisers spend large amount of money and expect to

get a return of increased customer demand.

• Difficult to measure the impact of advertising

– Take time to create an effect, which may not coincide

with the planning cycle or data collection period
– Difficult to separate the effects of advertising from other
marketing mix variables.

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 Operational objective of
advertising
• To make the customer aware of the product
• To create interest
• To create positive attitudes
• To create intention to buy the product

Direct-response advertising: To persuade the

customer to call a phone number to order a
product or to send in a card requesting further
information (through infomercials, banner ads
etc)
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 Customer decision process
High-involvement decisions:
• Involves thought to evaluate the pulses and
minuses of a product and their net benefit
• It leads to a positive or negative purchase
decision

Low-involvement decisions:
• Exposure to an ad or a product leads more or
less directly to purchase, with evaluation
occurring only after use.

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Exposure-oriented objectives

• Objectives that are generally quantitative

measures of exposure, typically in terms of
– Reach: the number or percentage who receives
at least one exposure
– Frequency: the average number of exposures a
potential customer receives
– Gross Rating Points (GRP): the total number of
advertising exposures received

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 3. Setting advertising
budgets
• Advertisements involve large amounts and it is very
important factor which leads to the success of many
products.

• Setting advertisement budgets has an immediate

impact on costs and longer-term effects on sales.

• A crucial distinction exists between viewing advertising

spending as an investment versus an expense
– Investments are expected to generate returns over a
long period of time. Advertisement is used as an expense
to achieve a profit target.

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 Contd…
• Consistent investment in advertising for products
can lead to a superior market position.

• For setting a budget,

– Develop a model that quantitatively estimates the
impact of advertising on sales and profits.
– Determine optimal spending levels either analytically
for a simple model and numerically for complicated
models.

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 Budgeting methods
Objective and task:
• Approach in which the PM first determines the
advertising objectives ( target audience, reach
& frequency goals) and then choose an
advertising plan to achieve the objectives.

• Objective leads to a budget and determine

reach and frequency.

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Percentage-of-Sales

• Based on the assumption that

advertising causes sales
• View the ad/sales ratio
• This method is convenient and safer than
committing to nontraditional spending
levels

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Competitive parity

• This approach considers share of

advertising dollars spent to determine
sales per share point and to set budgets
accordingly.
• Compare share of advertising dollars
spend to actual or desired brand share.

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Affordable

• This method selects an advertising

budget that, together with projected
sales, price, and other costs results in an
acceptable income statement and profit
level.

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Experimentation

• The manger tries different levels of

spending and monitors the results.
• These results are used to select among
different advertising budgets and plans

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Decision calculus

• Computerized decision support systems (DSSs)

help structure budget decisions systematically.
• Managers provide subjective (e.g. the expected
impact of increasing or decreasing advertising
spending)
• The computer program then estimates
consumer response and solves for optimal
spending

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 Guidelines for setting
advertising budgets
• Market share is important, the higher your share, the
more you should spend to project it.

• New products require higher advertising support than

established ones.

• Markets growing 10 percent or more annually require

a higher-than-average advertising investment.

• If your production is at less than two-thirds capacity,

you should think about increasing the ad budget.

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 Contd…
• Products with low unit prices require higher advertising
support than ones with high unit prices.
– Premium-priced and heavily discounted products should
receive more support than average priced products

• Higher-quality products generally require higher

advertising spending.

• Broader product lines require more support.

• Standard, off-the-shelf products need more support

than customized products.

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 Evaluating Ad Copy
• Laboratory-Based Measures

• Real-World Measures

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 Classification of Advertising
Copy-Testing Methods (Pg 344)
Advertising- Product-related
related test test

Laboratory Cell I Cell II

Measures Pretesting Pretesting
Procedures Procedures
Real-world Cell III Cell IV
Measures Pretesting Pretesting
Procedures Procedures
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 Laboratory-Based Measures
• Consumer Jury- Small group of customers are
led in a discussion of the advertising by a
moderator.

• Portfolio Tests- A Group of Respondents are

shown Control and Test Ads and further
asked
– to recall
– the ad which they liked best

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 Laboratory-Based Measures
• Readability Tests- No. of syllables per 100 words, length
of sentences etc. (graduate n child)

• Physiological Methods- A set of techniques measuring

involuntary physical responses to the ad.
– Pupil Dilation
– Galvanic Skin Response / Electrodermal Response
– Eye Tracking (Infrared) [how much, what part, sequence]
– Brain Scans

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 Laboratory-Based Measures
• Theater Tests- Participants are recruited by
telephone, shopping mall intercepts, direct
mail etc; a television show is provided in a
movie theatre-like facility; asked questions
about recall, attitude, interest etc.

• Laboratory Stores- Simulate by setting up a

shopping environment with real brands;
Respondents are shown advertising copy and
asked to make brand choices
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 Real-World Measures
• Dummy Advertising Vehicles- with normal editorial n
respondents will be interviewed on ads as well as
editorials

• Inquiry Tests- Tracking the no. of inquiries from an

ad (by website, toll-free no., reader inquiry card
etc.)

• On-the-Air/Recall Tests- A Real TV ad is inserted in

a program; Consumers are contacted and asked
recall of copy points, brand etc.

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 Real-World Measures
• Recognition Tests-
1st Ques: If the respondents have read a
particular issue of some magazine;
Followed questions: How much of the ad had
been read; How much they recall

• Sales/Minimarket Tests- Split-Cable

Methodology

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 Lab Tests vs Field Tests
Characteristics of lab tests-
• Environment can be controlled without
distractions to the respondent
• Situation not realistic

Characteristics of Field tests-

• Natural Viewing Conditions
• Other variables (competitor’s ad, children-
noise etc.) cannot be controlled
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 Media Selection
• Where

• When

(How often an ad is seen, By how many people)

(Heavily influenced by early decisions on advertising

Strategy, message, target audience, rate of ad
wearout)
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 Where?
• Efficient Audience Selection
– CPM (may overstate)
• CPM may be weighted by the product-usage
– Regional Differentiation
• May cost more but is often desirable

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 Where?
• Duplication and Wearout-
– May be desirable (for a complicated
concept, for a message that is soon
forgotten) or wasted (for a simple
message)
– Varying copy slightly may be expensive but
slows ad wearout
– A no. of combination of vehicles
complicates the analysis

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 When?
• Target Audience (Retail Stores or Consumers)
– Immediate Relevance
– Clutter
• When (in the context of PLC!)
– Heaviest during the introduction and growth
• Leveled throughout the relevant time period
or heavily bunched in a short span of time

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Evaluating Advertising Effects
• Tracking Studies
– Unaided Recall (G.M. Campaign)
– Aided Recall
Both are followed with questions (with marks)
Tracking the responses over time using either
the same sample or a different randomly
selected group
Through the book (showing a magazine and
asking questions about the ad)

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Evaluating Advertising Effects
Past Sales and Advertising
Past Advertising Past Sales
(either across different geographical
areas or over different time periods)

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 The Impact of Advertising Spending

please see the white board

S = f(Adv)
Decreasing returns over the whole range of advt. expenditure

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 The Impact of Advertising Spending
Three different forms-
1. Linear: S = B0 + B1 Adv
2. Decreasing marginal returns
a. S = B0 + B1 log (Adv)
b. S = B0 + B1 Adv – B2 (Adv)2
3. S shaped: S = exp [B0 – B1 Adv]
exp is exponentiation i.e. raising the mathematical constant e to
the [B0 – B1 Adv] power.

Problem- Variables like price, quality etc. not

taken into account.
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 Koyck Model (Including other variables)

Sales = B0 + B1 Adv + B2 Price + B3 Quality

+ B4 Distribution + B5 Past Sales +…

Avg. effect of current sales on current

advertising is 0.22 (Across 128 studies)

Carryover effect, the elasticity of impact of

current advertising on future sales through the
inertia effect of past sales on current sales is
about 0.47

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Generally doubling the adv. budget
generates a 1 to 30 % increase in sales
ceterus paribus

90% of the impact of adv. for consumer

goods occurs within the first 6 to 9
months

Ignores the effect of the competition

Our share = Our effort / (Our effort + Sum of their
effort)

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Advt. may interact with price
• Market Power hypothesis- Increased
levels of advertising build brand loyalty
and therefore decrease price
sensitivity.
• Advertising as Information- Advertising
informs about more brands and thus
increases price sensitivity.

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 Individual Customer Purchase Data

• Data analyzed at the individual

household level
• High start-up costs
• More precise estimates of the impact
of advertising

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 Lodish et al.
• Based on 389 advertising weight
(budget) tests
• Increase in sales only when the ads
convey some new benefits/uses
• Doubling the budget
– 2% for a mature product with no new info
– Around 30% for a new product/application

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Finally Evaluation of Ad Budgets

Is it reasonable to expect the implied

increase in sales based on the increased
spending on ad?

See the White Board…

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 Alternatives
• What similar budget increases have
generated in the past?

• New Product --- Mature Product

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