Complete the following exercises based on the ppt and files I gave you:
Web Exercise 4 Focus Text – Chapter 7 Please review three items that accompany these questions – the NYT article about Nike, the Dry Idea ad, and the Chevy ad. All are located in this folder. Successful completion of the following questions will require you to integrate information from the Chapter 7 readings. Please provide your answers to the following questions in the Web Exercise submission area within this folder. 1. In periods of downturns in the economy (like the recent recession), many companies greatly reduce their advertising and promotions budgets (think of the Nike article). However, this is not always the best strategy to pursue—think about this and briefly explain the downside of slashing these budgets. 2. Chapter 7 addresses how budget allocations to various media are expected to change over the next few years. Why are some media likely to receive more monies while others stay the same or decline? How does this apply to the Nike article? How will they refocus their media attention if they reduce their budget? 3. Different companies believe that various media are more important than others for their marketing purposes. Briefly discuss the various perspectives taken by these companies, and explain why everyone may not agree on the same level of importance for media. 4. View the Dry Idea ad image in this folder as an example of an ad with a sales objective. Briefly discuss the specific types of objectives the marketer has for this ad. 5. View the Chevy ad image in this folder as an example of an ad with a communications objective. Briefly discuss the specific types of objectives the marketer has for this ad.
In recession, Nike is likely to cut marketing
Published: Monday, November 2, 2009
CHICAGO — Nike, one of the world’s biggest sports marketers, could send shock waves through the
industry this year by cutting its marketing budget as part of a push to reduce expenses.
Nike, known globally through its endorsement deals with athletes like Tiger Woods and Kobe Bryant and
European soccer clubs including Manchester United and Arsenal, signaled that it was in a cost-cutting
mode by saying on Tuesday that it would eliminate as many as 1,400 jobs, or 4 percent of its work force.
Even if the company reins in advertising spending, sports sponsorships and endorsement deals – which is
considered likely – Nike would still be able to maintain its dominant position, analysts said.
“They have such penetration in their marketing budget that they can use attrition to cut off contracts,”
said Robert Boland, professor of sports management at New York University. “You’ll definitely see a
different allocation and you’ll definitely see some reduction. When you’re the biggest, you have the power
to do that.”
General Motors and FedEx, two other major sports sponsors, have reduced their marketing budgets,
including sports-related spending, in response to the recession.
Nike officials would not address specific plans but said everything was being reviewed.
“As part of restructuring our business, we’re analyzing all aspects of our costs, including sports marketing
contracts, advertising and brand marketing,” said Derek Kent, a company spokesman. “There are
opportunities for reductions in endorsement contracts, and we are evaluating them on a case-by-case
basis.”
Eliminating deals with lesser athletes, teams and sporting events could result in significant savings for
Nike, analysts said.
“They still want to uphold the spending on their marquee athletes,” said Tom Shaw, an analyst with Stifel
Nicolaus. “But there are opportunities to cut back on the secondary and tertiary type athletes or even
teams that perhaps didn’t really captivate or drive eyeballs to the brand.”
http://www.nytimes.com/
Nike spent an estimated $255 million to $260 million on sponsorships last year, up from $240 million to
$245 million in 2007, according to IEG, a research firm owned by WPP Group, the advertising
conglomerate.
Nike spent $143.4 million on advertising in the first nine months of 2008, down slightly from a year
earlier, when it spent almost $184 million over all, according to TNS Media Intelligence.
Nike surprised analysts in December by emphasizing cost-tightening in a conference call after third-
quarter results. In the past, the company was not known for frugality.
“Nike’s sports marketing strategy looking backwards was a little bit more free-spending than it will be
moving forward,” said Paul Swangard, managing director of the Warsaw Sports Marketing Center, an
academic arm of the University of Oregon.
Omar Saad, an analyst with Credit Suisse, wrote in a research note Wednesday that Nike was at the
beginning of a longer-term restructuring that would extend beyond job cuts.
“We think a story of slowing revenues will be overshadowed by Nike’s willingness and ability to cut
expenses in the coming quarters,” Saad said.
Nike’s North American marketing budget, he added, is likely four times that of its rival Adidas and far
above what is needed to maintain its market share.
Shaw, the Stifel Nicolaus analyst, said Nike had also started spending its marketing dollars more wisely,
pointing to the use of Bryant in viral marketing, or marketing that depends on social networks, e-mail
messages and word of mouth.
“They’re still using their brand power and big, marquee endorsement contracts,” Shaw said. “But instead
of coming up with an expensive TV campaign, they came up with something that people are watching on
YouTube. It’s more bang, less buck.”
1
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Chapter 7
Establishing
Objectives
and Budgeting
for the
Promotional
Program
7-
2
Value of Objectives
Communications
Objectives facilitate coordination of the various
groups
Planning and decision making
Objectives guide decision making and development
of the integrated marketing communications plan
Measurement and evaluation of results
Objectives provide a benchmark to measure success
or failure
7-
3
Marketing Objectives versus Integrated
Marketing Communications Objectives
Marketing
objectives
• Identify what is to be accomplished
by the overall marketing program
• Defined in terms of specific and
measurable outcomes
• Must be quantifiable, realistic, and
attainable
Integrated marketing
communications objectives
• Statements of what various aspects
of the IMC program will accomplish
• Based on the particular
communications tasks required to
deliver the appropriate messages
to the target audience
7-
4
Sales-Oriented Objectives
Aim to increase
sales
Require economic justification
Required to produce quantifiable results
Based on the achievement of sales results
7-
5
Factors Influencing Sales
7-
6
Problems with Sales Objectives
Successful implementation requires all
marketing elements to work together
• Carryover effect: Monies spent on advertising do not have
immediate impact on sales
Advertising has carryover effect
It is difficult to determine precise relationship
between advertising and sales
Do not offer much guidance for planning and
developing promotional program
2
7-7
Communications Objectives
Provide relevant information
Create favorable predispositions toward the brand
Set using models wherein consumers pass through
three
stages
Cognitive
Affective
Conative
7-8
Communications Effects Pyramid
• Low-level objectives, such as brand awareness, must be accomplished before moving to higher
levels. Therefore, advertisers set their communications objectives in relation to where the
target audience currently lies, with respect to the various blocks of the pyramid.
• The stages at the base of the pyramid are easier to accomplish than those toward the top, such
as trial and repurchase or regular use. Thus, the percentage of prospective customers declines
as they move up the pyramid.
7-9
Problems with Communications
Objectives
Translating sales goals into communications
objectives
Promotional planners have difficulty estimating
what constitutes adequate levels of awareness,
knowledge, liking, preference, or conviction
No formulas or guidelines
7-10
Defining Advertising Goals for Measured
Advertising Results (DAGMAR)
Communications effects are the logical basis for
advertising goals and objectives to measure success
or failure
Communications task
Performed by and attributed to advertising rather
than marketing factors, includes following stages
Awareness, comprehension, conviction, and action
7-11
Characteristics of Objectives
Present concrete and measurable tasks
Have well-defined target audience
Take into consideration the benchmark and the
degree of change sought
Benchmark measures: Determine target market’s
present position regarding the various response
stages
Specify the time period in which the goals must be
accomplished
7-12
Criticisms of DAGMAR
Problems with the response hierarchy
Sales objectives
Practicality and
costs
Inhibition of creativity
3
7-13
Traditional Advertising-Based View of
Marketing Communications
This slide can be used to discuss the traditional advertising-based view of marketing communications, which
uses the hierarchy of response model to move consumers along the pathway toward purchase.
Professor Don Schultz calls this inside-out planning. It focuses on what the marketer wants to say when the
marketer wants to say it, about things the marketer believes are important about his or her brand, in the media
forms the marketer wants to use.
An alternative approach suggested by Professor Tom Duncan is called zero-based communications planning. It
involves determining what tasks need to be done, which marketing communications functions should be used,
and to what extent. This approach focuses on the task to be done and searches for the best ideas and media to
accomplish it. 7-14
Zero-Based Communications Planning
Involves determining:
What tasks need to be done
Which marketing communications functions should
be used and to what extent
Focuses on the task to be done and searches for the
best ideas and media to accomplish
7-15
Conclusions on Research of Advertising
in a Recession
Source: G. Tellis and K. Tellis, “Research on Advertising in a Recession,” Journal of Advertising Research 49, no.3 (2009), pp. 304–27.0
7-16
Establishing the Promotional
Budget
Formulated when:
A new product is introduced
Internal or external factors necessitate a change to
maintain competitiveness
Established using economic theory, marginal
analysis, and contribution margin
Contribution margin: Difference between the total
revenue generated by a brand and its total variable
costs
7-17
Marginal Analysis
Increase in advertising/promotional expenditures
increases sales and gross margins to a point, after
which they level off
Weaknesses – Assumes that sales are:
A direct measure of advertising and promotions
efforts
Determined solely by advertising and promotion
7-18
Marginal Analysis
This slide can be used to explain marginal analysis and how it relates to the advertising budgeting process.
Profits are a result of the gross margin minus advertising expenditures.
Using this theory to establish a budget, a firm would continue to spend advertising dollars as long as the
revenues created by the expenditures exceeded the advertising costs. As shown on the graph, the optimal
expenditure level is the point at which costs equal the revenues they generate (point A).
4
7-19
Advertising Sales/Response
Functions
• The concave-downward function assumes that the effects of advertising spending follow the microeconomic law of
diminishing returns. That is, as the amount of advertising increases, its incremental value decreases. The logic is that
those with the greatest potential to buy will likely act on the first (or earliest) exposures, while those less likely to buy
are not likely to change as a result of the advertising.
• The S-shaped response function assumes that initial outlays of the advertising budget have little impact (range A).
However, after a certain budget level has been reached (range B), advertising and promotional efforts begin to have
an effect, and additional expenditures result in increased sales. When advertising expenditures enter range C,
however, incremental spending will have little additional impact on sales.
7-20
Budgeting Approaches: Top-Down
Approaches
Affordable method
•Firm determines the amount to be spent in various areas
Arbitrary allocation
•Budget is determined by management solely on the basis of what is felt to be necessary
Percentage-of-sales method
•Advertising and promotions budget is based on sales of the product
Competitive parity method
•Budget amounts are established by matching the competition’s percentage-of-sales
expenditures
•Clipping service: Clips competitors’ ads from local print media
ROI budgeting method
•Advertising and promotions are considered investments, and are expected to earn a certain
return
7-21
Alternative Methods for Computing
Percentage of Sales
7-22
Competitors’ Advertising Outlays do not
Always Hurt
7-23
Figure 7.18 – The Objective and Task
Method
7-24
Objective and Task Method
Advantage
Budget is driven by the objectives to be attained
Disadvantage
Difficult determine which tasks will be required and
the costs associated with each
5
7-25
Payout Plan
Determines the investment value of the advertising
and promotion appropriation
Projects the revenues a product will generate, as
well as the costs it will incur
Better and logical approach to budget setting than
the top-down approach
7-26
Quantitative Models
Employ computer simulation models involving
statistical techniques
Computer simulation models: Help determine the
relative contribution of the advertising budget to
sales
7-27
Steps to Develop and Implement the
Budget
Employ comprehensive strategy
Develop strategic planning framework that employs an
integrated marketing communications philosophy
Develop contingency plans
Focus on long-term objectives
Evaluate effectiveness of programs have to be
consistently
7-28
How Advertising and Promotions
Budgets Are Set
7-29
Budget Allocation: Factors to Consider
Allocating to IMC elements
Client/agency policies
Market size
Market potential
Market share goals
7-30
The Share of Voice (SOV)
Effect and Ad Spending: Priorities in Individual Markets
6
7-31
Economies of Scale
Set of advantages that allows firms to spend less on
advertising and realize a better return
This slide can be used to define economies of scale. Larger advertisers can maintain
advertising shares that are smaller than their market shares because they get better
advertising rates, have declining average costs of production, and accrue the
advantages of advertising several products jointly. In addition, they are likely to enjoy
more favorable time and space positions, cooperation of middlepeople, and favorable
publicity. These advantages are known as economies of scale.
7-32
Organizational Characteristics
Factors that influence advertising and promotion budgets
Organizational structure: Centralized versus decentralized,
formalization, and complexity
Power and politics: Including the level of interaction between
functional departments
Use of expert opinions: For example, advise from consultants, or
trade and academic journals
Characteristics of the decision maker: Preferences and experience
Approval and negotiation channels: How many approval levels,
approval limitations, and so forth
Pressure on senior managers to arrive
at the optimal budget: More important than ever in an economic
downturn