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The approaches to setting objectives can be divided into the following broad categories:
1)
Primary
2)
3)
4) Linear Hierarchical Models.
and
selective
PLC
Advertising
demand
theory,
approach,
Spiral,
to stimulate the customers for using the product by giving trial offers,
The advertiser may not be very specific towards its own company or brand. This would be
an Ad for the generic demand. There may not be any competitor at this stage; this would
automatically be the Ad plan for the industry as such.
Selective demand theory: If the advertiser has an objective of creating selective demand,
the advertisement should be of persuasive nature. This kind of objective is set for the
products that already have the primary demand. And the advertiser is interested in getting
a response in terms of actual sales and not merely a query. For such an action one needs to
create strong desire for the brand in which the advertiser is dealing. For this purpose the
distinctiveness of the specific brand or the product or service in terms of features, quality,
benefits etc. should be made visible. Hence the advertising objectives should be set in the
manner that these needs are fulfilled.
Examples: The products like VIM, Ready to Eat stuff, Tata Sky etc. captured their market
share through creating primary demand initially. They simply informed the customer about
the existence of the product and arouse interest in the minds of the people. Later, they
through persuasion and influencing the mindset and behavioural response, a secondary
demand was created. The prospective consumers were sold the additional advantages,
features, price tags associated with the value system etc. Interest was transformed into
strong desire and ultimately a favourable action.
The same communication objective does not work, it changes, and it needs to be redefined
with the changing needs, requirements, and changing market scene. Hence the advertiser
needs to redefine his communication objective with the passage of each stage of product life
cycle.
In the Introduction stage the advertiser needs to adopt the strategy of introducing ideas,
creating awareness, providing knowledge and educating consumers about the product. The
advertiser takes advantage of the fact that there may be little or no competition at all in the
market during this stage of product life cycle. Here, informative advertising is used.
In the growth stage, the advertiser needs to build the brand image. He should be displaying
the strengths of the brand. He can develop liking and preferences and build brand image by
using companys name and goodwill also. The advertiser also needs to differentiate his
product and brand from others, highlighting the distinctive features and quality etc. over
competitors products. Competitive and persuasive advertising is used.
In the maturity stage, the advertiser needs to differentiate his product and brand; make use
of larger variety of media to get a wider market. He attempts to retain patronage and count
upon brand loyalty. He can get advantage of his reputation. The advertiser may either
choose to have little advertising or use repeated retentive advertising.
In the decline stage of the product life cycle the marketer may decide to keep low at
advertising and stop using other types of supportive promotional activities or he may just
quit from advertising the product. The product loses its market share to competitive
products. The product may phase out completely unless rejuvenated product adds up to its
life.
The advertiser needs to adopt repositioning strategies or innovative advertising and make
efforts to reach out to all prospective consumer group(s). This needs to be done to reinforce
the new life of the product innovation or modification with a new formula or a new name.
For example, Surf-Daag Achhe Hain, gave new life to the surf detergent powder. An
ointment, Boroline was given a new name Boro plus with a new additional cosmetic value
in place of the medicinal value and entered into a new life cycle.
In the retentive stage of advertising, the advertising is termed as retentive advertising. The
objective is to retain the market share. The product reaches the most profitable stage at
this point and retentive advertising aims at milking the brand. This parallels maturity and
decline stage of PLC. There are two alternatives available to the advertiser at this stage:
1. To reduce/curtail the advertising effort, withdraw and call off advertising gradually
after reaping the maximum profits from the product and allow the product to die.
This happens when competition is intense and company is not willing to take the
product innovation any further.
2. To use pioneering advertising for new features of the existing product or for line
extensions of the product. This happens when the company modifies the existing
product and adds a new functional dimension to it or completely overhauls the
existing product to form a new utility of the product.
In both cases a new/expanded cycle begins with the following stages: newer pioneering,
newer competitive and newer retentive. These are further followed by: newest pioneering,
newest competitive and newest retentive. And that is how the spiral goes on and on.
Figure 6: Click on the links below to view the changes in depicting advertising spiral over
the years.
Source: http://www.reanimationlibrary.org/images/theadvertisingspiral.jpg
It must be noted that in newer pioneering stage and beyond, the stages do not go along a
circle, but expands in the form of a spiral, with long-term customers perceiving the product
in competitive or retentive stage and the new customers perceiving it as in the pioneering
stage.
customer on the hierarchy make it easier for the marketer or advertiser to design their
program and set the objectives of the program effectively.
It is not necessary at all that the prospective buyers follow a particular sequential pattern
only. They do change their mental state in a dynamic manner, jumping right away to the
final stage or just skipping one or two steps. The advertisers perceive the prospective
customer them to be on different stair-steps stages. And there are various models guiding
the advertiser to lay down their own program of advertising on the basis of different kinds of
hierarchical presentations.
1898 For the first time hierarchy-of-personal selling effects found its place in
literature. The hierarchy suggested by Elmo Lewis was: Attention, Interest, Desire
- AID.
1900In hierarchy-of-personal selling effects Elmo Lewis added another stage
Action at the end to include closing of a sale by a salesman. The new hierarchy was:
Attention, Interest, Desire, Action - AIDA but did not become very popular.
1911 Arthur F. Sheldon added another dimension Satisfaction to the hierarchy.
The hierarchy of selling process given by him was: Attention, Interest, Desire,
Action, Satisfaction - AIDAS.
1925 Edward Strong adapted the concept of hierarchy-of-effects to advertising.
The hierarchy propounded by him was: Awareness, Interest, Desire, Action; which
popularly became the acronym, AIDA.
1947 Albert Frey was of the opinion that advertisers must understand the mental
steps that the consumers pass through before they actually purchase their product.
He suggested that the advertisers, while creating the advertisement, must keep in
mind to take the prospective customers through the following stages:
create acceptance, preference and demand for their products among the prospective customers.
1950 Darrell Lucus and Steuart Britt gave a formula for hierarchy-ofadvertising effects as: Attention Interest, Desire, Conviction, and Action in their
introductory text, Advertising Psychology.
1961 This year is marked in history for widespread dissemination of information
on how advertising works. There came about two important and independent
publications.
i) AIDA:
AIDA is the acronym of Attention, Interest, Desire, Action. This is the simplest model and
perhaps the first one of its kind, where an effort is made to describe the way advertising
affects or influences the prospective customer. This is based on the principle of sequential
process or stages of consumers action for purchase.
This has been an adaptation of the formulation: 'A hierarchy-of-personal-selling-effects', (in
1898) by Elmo Lewis. The emphasis has been on understanding the consumer's response to
the advertisement endeavor. It is important for the advertisers to comprehend and predict
the pattern of consumer's reactions in order to set the objectives specifically and make
effective advertisements.
Attention: It states that the advertisement should be so catchy and effective that it is able
to grab the attention of the potential customer. If the advertiser or a marketer is able to
seize attention, the objective of creating awareness is achieved.
Interest: Naturally the next step is to create interest for the product or service in reference.
Catching attention is not enough. It becomes useless if it is not followed by the development
of interest among the viewers. The reader or viewer must become interested in going
through the entire Ad and getting interested in knowing more about the product. Unless the
interest in the product or service is created or maintained by the advertisement, the
marketer cannot get the action in terms of sale.
Desire: If the advertisement has served the initial two purposes of seeking attention and
raising interest, the next step for the advertiser is to create a desire for possessing the
production the minds of prospective buyers. The stronger the desire, the better are the
chances of sales. In order to achieve this, the features and benefits of the product or service
need to be emphasized. One needs to demonstrate that the product or service would solve
the consumer's problem or fulfill the need or want of the consumer.
Action: The marketer believes that the Ad is a waste of investment and effort if it does not
get converted into sales. Under the stage of action the potential customer is persuaded to
purchase. Such an act of persuasion requires transforming a strong desire into sales, as it
may not happen automatically. The persuasion in the advertisement must push the desire in
the consumer's mind to act. If the desire is strong the chances are that it will turn into
sales.
Reliance India Ltd prepared its successful Ad-Campaign of CDMA mobile, based on the
Model of AIDA.
However, as per the traditional viewpoint, the function of advertisement is only
communicative. And the communicative objective of advertisement is fulfilled once the
desire is created, though the action in terms of sales only makes an advertisement
meaningful. This model primarily talks about being pushy and persuasive, and does not
emphasize on sales, thereby accomplishing the communication aspect of advertising
objectives more than the sales aspect.
ii) AIDAS:
In 1911 yet another dimension of 'Permanent Satisfaction' was added to the AIDA model by
Arthur F. Sheldon as 5th stage. 'S' here stands for 'satisfaction'. He stressed on the
importance on repeat sales. He opines that the buyer, if satisfied, will definitely go for a
repeat purchase. And the loyalty of existing customers is important for maintaining or
enhancing market share. Also, it is a necessary part of persuasive and long-run-selling
process.
behavioural response such as developing preference of the product over others, creating
association with brand or product and finally a purchase is made.
In 1961, a new model of hierarchy-of-effects was proposed by Robert J.Lavidge
and Gary A. Steiner with emphasis on persuasion as an important aspect of all marketing
communications.
Besides considering the short-term recall value of advertising as a means of marketing
communications, it recognized its long-term value too.
The model describes six stages that a customer goes through before making a final
purchase action for a product. These stages are:
Awareness
Knowledge
Liking
Preference
Conviction, and
Purchase.
Figure 9: Hierarchy-of-Advertising Effects
The advertisers attempt in the above stages in a sequential order is therefore to make the
prospective consumers aware about the very existence of the product in the market, make
them know about the product features and benefits, make them develop a favourable
attitude for the advertised brand, make them prefer their brand over others in the market
by highlighting product differentiation, create a strong desire and conviction to buy the
same product, and finally lead them in actually purchasing the product.
Match the statements given below with the six steps in the hierarchy-of-effects model as
described by Lavidge and Steiner and arrange the job of the advertiser in encouraging
the customers to go through these six steps:
1. Knowledge
2. Purchase
3. Awareness
4. Conviction
5. Liking
6. Preference
The six steps of awareness, knowledge, liking, preference, conviction and purchase have
been grouped into three stages of consumer behaviour, namely, cognitive, affective and
conative according to Lavidge and Steiner. Cognitive relates to thinking and therefore
includes awareness and knowledge; affective relates to feeling and covers liking,
preference and conviction; and conative relates to behaviour and refers to the act of
buying the product.
According to these three stages, the advertisers tasks are to make the prospective
consumers think, feel and act (purchase).
The study of hierarchy-of-effects model is not only useful in advertising as it helps in setting
of advertising objectives and their evaluation later on; but is also useful in choosing an
advertising media, in publicity, sales promotion and personal selling. It has far more
implications than just on advertising. This makes its study useful to the advertiser and
marketer.
Figure 10: Click on the link below to view an image on Hierarchy of Effects Model and its
Implications for Promotion mix.
Source: http://www.sba.pdx.edu/faculty/tomg/MIM515/Day7-MIM515-f2001v3/img005.gif
Neuro-Images of Advertising
Neuroscience has opened a new chapter on how advertising works by considering not
only the rational component of the brains activity, but also the emotional component.
While the rational component has been considered active and has been researched
extensively in giving reasons to believe how consumers decide to buy, the emotional
component has been significantly ignored. It was found that emotional ads have
greater likelihood of being remembered. Experiments were conducted to find out the
part of brain that responded to emotionally engaging (affective) and reason-engaging
(cognitive) advertising stimuli. This led to a revolutionary change in the advertising
environment that suggested that there are two effects on viewing an advertisement
cognitive and affective. The affective part is associated with decision-making and social
sensitivity and is therefore relevant to advertisers.
Thus, the challenge for the advertisers is not just to come up with a stimulating
advertisement, but to create an environment wherein the consumers brain unlearn the
past information and build a new enduring message that can be accepted by the
prospective customers and creates a positive image of the brand. Think about it and
discuss it with your peers.
Characteristics of Advertising
Play the video on advertising objectives and list the features of good objectives.
How far is setting the objectives in a planned manner important for a
marketer/advertiser? Discuss
Source: http://www.youtube.com/watch?v=zRo4XXrWoGo
1. Awareness
2. Comprehension
3. Conviction
4. Action
The initial communication task is to make consumers aware of the existence of brand. The
objective at this stage is to increase brand awareness among the consumers in order to
facilitate upward movement in the hierarchy.
The existing awareness among the prospective customers may be high or low. Also,
the involvement of the prospective customers in the product may be high or low. The
involvement is said to be high when the amount involved in acquiring the
product/service is huge, the purchase decision is less often and irreversible, and the
cost of making an incorrect decision is huge; example automobiles, real estate. The
involvement is low when the amount involved in acquiring the product/service is
less, the purchase decision is frequent, and decision making does not involve much
risk in terms of a wrong decision; example milk, bread.
Creating awareness is a challenging task for the advertiser and he will have to set
the objectives keeping in mind the level of awareness and the level of involvement.
There may be 4 possibilities:
association between awareness about the product and the need for the
product.
Source:http://www.fillassociates.co.uk/site/assets/images/briefing_sheet_images/m
arketing_communications_/information_processing/Awareness_Grid.jpg
After the prospective customers are sufficiently aware, the next stage is to make them
comprehend or understand the product. The objective of advertising at this stage is to make
them understand the benefits, functions and utility of the product advertised. The
advertisers can later decide on the type of appeal for advertising the product, like, rational,
emotional, price appeal or any other type of appeal. For example, The ad of Ganga mineral
water has been created using rational appeal that focuses on the feature (purity) of the
product (mineral water) of a specific brand (Ganga); making the customers understand that
the mineral water.
Once the customers understand the product and are able to comprehend what the brand
has to offer, the next step for the advertiser is to persuade them to purchase the product.
The objective of advertising at this stage is to create a strong conviction among the
prospective customers to execute a buying behaviour. This may be achieved by making
them develop a strong preference for the brand and a favourable mental disposition or
attitude for the product.
The ad of Hero Honda Pleasure created awareness about the existence of a new
product, highlighted specific features for creating comprehension and included the
jingle Why should boys have all the fun to create strong conviction among the
females to buy the product.
Source: http://www.youtube.com/watch?v=H_R5D4cPmC0
http://www.youtube.com/watch?v=_H6jAV613XM
The last stage is to get the customer buy the product. The objective of advertising at this
stage is to push the prospective customer to act: the act of actually buying or taking a trial
of the product that finally closes on product purchase. This step is very important, as the
ultimate objective of advertising is to create sale even if the emphasis is merely on
communicating the message effectively.
1. Use of toll free numbers by mobile service providers to buy additional SIM card
with a number similar to the one being used, or for availing some additional
facility for their current number,
2. Direct mail sent by the company for some special offer or a clearance sale,
3. Redemption coupons with the newspaper advertisement that makes the
customer to purchase the product in order to get some benefit.
Setting of objectives according to DAGMAR approach not only makes the objectives serve as
benchmarks for measuring the effectiveness of advertising, but also helps the marketer and
advertiser decide on the following:
Advertising budget,
Design of ad copy,
Appropriate decisions with respect to the above dimensions lead to better client-agency
relationships on one hand and create brand loyalty among customers on the other hand.
4. Practicality and Cost aspect: Another objection raised is about the set of difficulties
5. Advertising is not the sole cause for sale: Many factors besides the advertising affect
the level of sales, for example, product, price, distribution and other promotion
related factors.
DAGMAR-II Approach
Dagmar II was also developed by Russell Colley. While all the characteristics of
the earlier DAGMAR approach for setting advertising objectives were retained in
this approach, the difference lies in the hierarchy suggested by Colley in both
the approaches.
The first approach suggested a four step communication hierarchy model that
was criticized on the ground that the consumers might not always go through
the same hierarchy and therefore advertising need not follow it strictly.
In order to overcome this limitation, DAGMAR-II emphasized the current
prevailing situation of the market. It recognized many different patterns of
hierarchy that were possible.
Analyze the figure and compare the three models for their approach in setting of
advertising objectives.
Do you find them any different with respect to their approaches in the precognitive, cognitive, affective and conative stages? If yes, discuss your opinion
with your peers.
Source: http://ars.els-cdn.com/content/image/1-s2.0-S0148296304001080gr1.jpg
Why it Matters:
The DAGMAR method is a long-established method of creating effective advertising. The idea
behind the method is to communicate rather than sell.
Reasons for Setting Advertising Objectives
The advertising objectives define a clear path on which the marketer or advertiser has to
move. Once they know their current position and the targeted future position, they can plan
accordingly and set the advertising objectives to reach their desired destination. The
advertising objectives are set for a number of purposes these serve.
1. Initial step in planning an Ad-campaign: Setting advertising objectives is the first step in
the process of designing and creating an Advertisement Program. These lay the framework
for the subsequent tasks in the advertising plan. They help to identify the goals of the
past experience, the needs and desires of individuals, the status of a person, value system
and other social and cultural factors.
The perception of the target audience is very important to an advertiser as it leads to a
response or action of buying or not buying a product. It therefore becomes important for
the advertisers and marketers to study the various factors that are likely to have a bearing
on the perception formation. And the advertisements are designed suitably to help people
form desirable perceptions. They must convince the audience (consumers), influence them
and bring attitudinal changes.
1. Consistency with overall company objectives The advertising objectives are the
means to achieve the overall business objectives that may be survival, growth,
attaining market leadership through greater penetration, being a cost leader, driving
competitors away, or meeting competition. They must be decided upon after
considering the broad company objectives.
2. Consistency with marketing objectives The advertising objective is derived from the
overall marketing objective that in turn is derived from the company objective. Care
must be taken while formulating the advertising objectives that they do not conflict
with the marketing objectives.
objectives would require committing different amounts of funds for its attainment.
For example, aiming to achieve huge awareness and inducing trial for a newly
launched product might call for aggressive advertising that shall require lot of funds
to be set-aside for the purpose. The marketers must ensure the availability of funds
before setting advertising objectives to make them attainable.
4. Analyzing the product on its PLC A product goes through different stages of the
product life cycle (PLC), namely, introduction, growth, maturity and decline. During
these stages the sales and profit varies. Even the marketing and advertising
objectives vary for all these stages. Before setting the advertising objectives, the
marketer must consider the stage of the product in its PLC.
Stage
Marketing Objective
Advertising Objective
Introductory
Growth
Maturity
Decline
Source:
http://www.google.co.in/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CC4QFjAA&url=http%3A%2F
%2Fdirectory.umm.ac.id%2FSlide_Kuliah%2FPPT
%2FMP_Kotler_8%2FKOTCHA09.ppt&ei=zmUHUbnkKY7zrQfD2IHgAQ&usg=AFQj
CNHOEml772Xq_rUJxfBDGwEMhWi0sA&bvm=bv.41524429,d.bmk
1. Keeping up with the level of competition The existing level of competition has an
impact on the setting of advertising objectives. The marketers must consider the
level of competition, the intensity of competition, and the top players, marketing and
advertising objectives. If a potential competitor is a threat to the firm, then the firms
advertising effort must at least match up with the competitors advertising effort or
else the firm will lose its potential customers to the competing firm. However, if the
marketing objective of the firm is to be a quality or cost leader in the market or to
attain near monopolistic position, then advertising objectives are set accordingly.
and geographically spread generally, the market for industrial product is limited. This
calls for different advertising objectives for both. To match the nature of market for
the consumer goods, the advertising objectives are kept broad and comprehensive.
Advertising becomes an important component of the overall promotion mix.
Similarly, for industrial goods the advertising objectives are narrower and tend to
support the personal selling by salesmen.
Paly the video by clicking on the link below to view an ad of Life Insurance
Corporation (LIC) of India. What could be the advertising objective of such an ad?
The advertisers are trying to build assurance of a peaceful life. The LIC
advertisement sends across an idea of leading a life without stress despite the
inherent uncertainties of life when you are Insured with the company.
Source: http://www.youtube.com/watch?v=TIuft4onZjA
1. Pull vs. Push strategy of distribution Advertising objectives will also depend upon
the strategy of distribution followed by the marketer. While pull strategy is directed
towards the final consumers and aims to create demand at the final end, push
strategy is directed towards middlemen or channel members and aims to capture
market share by spread of word-of-mouth by such middlemen. The pull strategy
pulls the customer towards the product such that the customer reaches out to
acquire the product; the push strategy pushes the product down through the
wholesaler to the retailer to the final customer. Naturally, if pull strategy is followed,
the company will have to use aggressive advertising to make the consumers aware
of the product, to inform them of existing and new features of the product, persuade
them by reminding them and reinforcing their belief in the product and the company.
However, if push strategy is adopted, the company will have different advertising
objective to convince the retailers to provide them with larger shelf space, stock
more of their products and persuade the prospective customers at the POP (Point-ofPurchase) to buy the product through additional sales offers.
how can advertising help in achieving the desired behavior or response of the
customer.
ii) Target market or segment- the target market is identified incompatibility to the product,
and the information is gathered in respect of:
The next step is that of analysis of information or data. The advertiser should analyze the
data to find outi) the ultimate behavior that the advertiser is trying to precipitate, reinforce, change or
influence,
ii) the incentive to induce trial purchase of new customers, to maintain loyalty of existing
customers, to increase the usage rate, to increase brand loyalty and to reduce attrition rate.
Defining or choosing Advertising Objectives: After analysis of data the objectives are to be
identified clearly and explicitly with regard to i) type of communication objectivescreate awareness of the existence of the product, or
arouse interest, build strong desire, communicate information about the brand, create brand
image, or attitude, build long term brand association, or associate feelings or a type of user
personality with the brand,
ii) type of sales objective: One has to decide about the quantified sales objectives,
specifying the target market to be achieved, increase the branded sale,
iii) the specific advertising objectives: increase demand in new geographical area by 8% of
total sales, build brand image and goodwill in all sales areas, educate masses, support
salesmen and middlemen through specified incentives and dealer promotion schemes,
neutralize the competitor's advertising and so on.
Situation analysis identifies the current position of the company with regard to
the product, market, competition, and returns etc. This also facilitates
identification of the road ahead.
Understanding the market and the competition makes the difference in selling a
commodity, a high tech product, or expensive equipment successfully.
The information with regard to strengths, weaknesses, opportunities and threats
of the company compared to the competitors will facilitate appropriate decisionmaking. One can visualize what opportunities and strengths can be emphasized
and what weaknesses and threats can be addressed.
Summary
Setting of advertising objectives is a very important task for the advertiser or the
marketer.
The communication model and the sales model, the qualitative and the quantitative
respectively, are the two schools of thoughts that govern the setting of advertising
objectives.
The advertising objectives are derived from the marketing objectives, which are a
part of overall company objectives and hence have to be consistent with them.
While setting the advertising objectives, besides the marketing and company
objectives, a host of other factors must be considered, namely, products stage in the
PLC, level of competition, nature of product and market, the hierarchy of effects of
advertising and distribution strategy.
The process of setting advertising objectives includes the following stages: situation
analysis of the company, identifying the company needs, determining the marketing
objectives and on the basis of them identifying advertising objectives.
There are various approaches to setting of advertising objectives that can be adopted
by the advertisers.
Under primary and selective demand theory approach, the advertising objectives are
set on the basis of the broader objective of creating demand for the product or
service in the market. The demand may be primary or selective.
The PLC approach describes how the setting of advertising objectives becomes
different with each stage of a product or service in its life cycle.
Advertising Spiral approach is similar to PLC approach with the difference that while
PLC approach focuses on the stages of the product in its life cycle, advertising spiral
approach emphasizes on the stages of advertising in the life of a product and guides
the setting of objectives accordingly.
The hierarchical models of advertising suggest a sequence of mental stages that the
consumers go through on being exposed to an advertisement. These emphasize
setting of objectives on the basis of such mental stages reached by the target
consumers.
There are different hierarchical model suggested in different years, namely, AIDA,
AIDAS, Innovation Adoption model, Hierarchy-of-Effects model and DAGMAR
approach.
However, DAGMAR approach has been criticized for several reasons that lead to the
concept of following Integrated Marketing Communication in all marketing
communications and thereby found its place in setting of advertising objectives.
Small Business Advertising Budget - Deciding how much your advertising budget - just how
much should be invested in making sales grow - and how that amount should be allocated is
completely up to you, the business owner-manager.
Advertising costs are a completely controllable expense. Advertising budgets are the means of
determining and controlling this expense and dividing it wisely among departments, lines, or
services.
This Guide describes various methods (percentage of sales or profits, unit of sales, objective and
task) for intelligently establishing an advertising budgetand suggests ways of applying budget
amounts to get the effects you want
If you want to build sales, it's almost certain you'll need to advertise. How should you allocate
your advertising dollar? How can you be sure your advertising outlays aren't out of line? The
advertising budget helps you determine how much you have to spend and helps establish the
guidelines for how you're going to spend it.
What you'd like to invest in advertising and what you can afford are seldom the same. Spending
too much is obviously an extravagance, but spending too little can be just as bad in terms of lost
sales and diminished visibility. Costs must be tied to results. You must be prepared to evaluate
your goals and assess your capabilities - a budget will help you do precisely this.
Your budget will help you choose and assess the amount of advertising and its timing. It will also
serve as the background for next year's plan.
Methods of Establishing an Advertising Budget
Each of the various ways in which to establish an advertising budget has its problems as well as
its benefits. No method is perfect for all types of businesses, nor for that matter is any
combination of methods.
Here concepts from several traditional methods of budgeting have been combined into three
basic methods:
than your competition. Average may not be good enough for you. You may want to out-advertise
your competitors and be willing to cut into short term profits to do so. Growth takes investment.
No business owner should let any method bind him or her. It's helpful to use the percentage-ofsales method because it's quick and easy. It ensures that your advertising budget isn't way out of
proportion for your business. It's a sound method for stable markets. But if you want to expand
your market share, you'll probably need to use a larger percentage of sales than the industry
average.
Which Sales? (Business Advertising Budget)
Your advertising budget can be determined as a percentage of past sales, of estimated future
sales, or as a combination of the two:
1. Past Sales. Your base can be last year's sales or an average of a number of years in the
immediate past. Consider, though, that changes in economic conditions can make your figure too
high or too low.
2. Estimated future sales. You can calculate your advertising budget as a percentage of your
anticipated sales for next year. The most common pitfall of this method is an optimistic
assumption that your business will continue to grow. You must keep general business trends
always in mind, especially if there's the chance of a slump, and hardheadedly assess the
directions in your industry and your own operation.
3. Past sales and estimated future sales. The middle ground between an often conservative
appraisal based on last year's sales and a usually too optimistic assessment of next year's is to
combine both. It's a more realistic method during periods of changed economic conditions. It
allows you to analyze trends and results thoughtfully and to predict with a little more assurance
of accuracy.
Unit of Sales
In the unit-of-sale method you set aside a fixed sum for each unit of product to be sold, based on
your experience and trade knowledge of how much advertising it takes to sell each unit. That is,
if it takes two cents' worth of advertising to sell a case of canned vegetables and you want to
move 100,000 cases, you'll probably plan to spend $2,000 on advertising them. Does it cost X
dollars to sell a refrigerator? Then you'll probably have to budget 1,000 time X if you plan to sell
a thousand refrigerators. You're simply basing your budget on unit of sale rather than dollar
amounts of sales.
Some people consider this method just a variation of percentage-of-sales. Unit-of-sales does,
however, probably let you make a closer estimate of what you should plan to spend for
maximum effect, since it's based on what experience tells you it takes to sell an actual unit, rather
than an overall percentage of your gross sales estimate.
The unit-of-sales method is particularly useful in fields where the amount of product available is
limited by outside factors, such as the weather's effect on crops. If that's the situation for your
business, you first estimate how many units or cases will be available to you. Then, you advertise
only as much as experience tells you it takes to sell them. Thus, if you have a pretty good idea
ahead of time how many units will be available, you should have minimal waste in your
advertising costs.
This method is also suited for specialty goods, such as washing machines and automobiles;
however, it's difficult to apply when you have many different kinds of products to advertise and
must divide your advertising among these products. The unit-of-sales method is not very useful
in sporadic or irregular markets or for style merchandise.
Objective and Task
The most difficult (and least used) method for determining an advertising budget is the objectiveand-task approach. Yet, it's the most accurate and best accomplishes what all budgets should:
It relates the advertising appropriation under usual conditions and in the long run to the
volume of sales, so that profits and reserves will not be drained.
To establish your budget by this method, you need a coordinated marketing program with
specific objectives based on a thorough survey of your markets and their potential.
While the percentage-of-sales or profits method first determines how much you'll spend without
much consideration of what you want to accomplish, the task method establishes what you must
do in order to meet your objectives. Only then do you calculate its cost.
You should set specific objectives: not just "Increase sales," but, for example, "Sell 25% more of
product X or service Y by attracting the business of teenagers." Then determine what media best
reaches your target market and estimate how much it will cost to run the number and types of
advertisement you think it'll take to get that sales increase. You repeat this process for each of
your objectives. When you total these costs, you have your projected budget.
Of course, you may find that you can't afford to advertise as you'd like to. It's a good idea,
therefore, to rank your objectives. As with the other methods, be prepared to change your plan to
reflect reality and to fit the resources you have available.
Calendar Periods
Most executives of small businesses usually plan their advertising on a monthly, even a weekly,
basis. Your budget, even if it's for a longer planning period, ought to be calculated for these
shorter periods. It will give you better control.
The percentage-of-sales methods is also useful here to determine how much money to allocate by
time periods. The standard practice is to match sales with advertising dollars. Thus, if February
accounts for 5% of your sales, you might give it 5% of your budget.
Sometimes you might want to adjust advertising allocations downward in some of your heavier
sales months, so you can boost the budget of some of your poorer periods. But this should be
done only if you have reason (as when your competition's sales trends differ markedly from
yours) to believe that a change in your advertising timing could improve slow sales.
Media
The amount of advertising that you place in each advertising medium - such as direct mail,
newspapers, or radio - should be determined by past experience, industry practice, and ideas
from media specialists. Normally it's wise to use the same sort of media your competitors use.
That's where, most likely, your potential customers look and listen.
Sales areas
You can spend your advertising dollars where your customers already come from, or you can use
them to try to stimulate new sales areas. Just as in dividing your appropriation by time periods,
it's wise to continue to do the bulk of your advertising in familiar areas. Usually it's more costly
to develop new markets than to maintain established ones.
A Flexible Advertising Budget
Any combination of these methods may be employed in the formation and allocation of your
advertising budget. All of them - or simply one - may be needed to meet your advertising
objectives. However you decide to plan your budget, you must make it flexible, capable of being
adjusted to changes in the marketplace.
The duration of your planning and budgeting period depends upon the nature of your business. If
you can use short budgeting periods, you'll find that your advertising can be more flexible and
that you can change tactics to meet immediate trends.
To ensure advertising flexibility, you should have a contingency fund to deal with special
circumstances - such as the introduction of a new product, specials available in local media, or
unexpected competitive situations.
Beware of your competitor's activities at all times. Don't blindly copy your competitors, but
analyze how their actions may affect your business - and be prepared to act.
Getting Started
Your first budget will be the most difficult to develop - but it will be worth the effort. The budget
will help you analyze the results of your advertising. By your next business year you'll have a
more factual basis for budgeting than you did before. Your plans will become more effective with
each budget you develop.