Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-13
One of the reasons for planning is to improve the company’s overall goals, the other is to determine
what worked and what did not. Planners need to know if one program element is working or not—for
example, if there was a promotion, did it draw customers in to the store? If ads were placed on
4. What are the two key issues that marketers must face in regard to budgeting? Explain the differences
and give examples of each. (LO5)
In making budget decisions, the marketer must decide at what level to set the budget, and then how to
allocate it. In setting the budget, the decision must be made as to how much is going to be spent. For
smaller companies, and/or nonprofits this may be a very small amount. But for large companies, like
5. Explain the S-shaped response curve and the concave downward curve as they relate to budget
setting. What are the differences in these two curves? Give examples of how each might be more
appropriate for different products. (LO6)
Both the S-shaped and concave downward curves are based on economic theory. In the former, the
model proposes that the effect of the advertising on sales will proceed through three ranges. In the
first range there is very little impact of ad expenditures on sales, then in Range B the impact rises
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-14
The concave downward function implies that the impact of the advertising will have an almost
immediate impact or none at all. This impact levels off very quickly, however, with subsequent
outlays having no additional effect on incremental sales.
6. There have always been attempts to directly measure the effects of advertising on sales. At the same
time, there are many who believe that this is rarely possible. Why is it so difficult to establish a
relationship between advertising and sales? (LO3)
As you might expect, when one is spending a lot of money on advertising, it is important to know if
this money is being spent wisely. Thus, there has always been an attempt to relate advertising to sales.
The problem with establishing this relationship is that a number of other factors affect sales, including
environmental effects, other marketing variables, etc.
Sometimes advertising can be effective at creating sales but at a later date. In advertising, this is
referred to as the “lag” effect. What if I see the ad now, but don’t buy until later? Is it possible to
measure the impact of the advertising directly on the sales?
7. Explain the difference between the S-shaped response model and the rapidly diminishing returns
model. Some believe that the former of these may be best suited for low involvement products, and
the latter for high involvement products. Do you agree or disagree with this position? Explain. (LO6)
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-15
The s-shaped response curve makes the assumption that certain levels of advertising
expenditures must be reached before any noticeable impact on sales will occur. According to
this model, initial outlays will have little or no noticeable impact on sales, then additional
outlays will have a very noticeable effect to a point wt which sales will level off and
additional expenditures will again have little or no impact.
The models would also differ in respect to the types of products being advertised. For
example, the S-shaped response curve would seem to indicate an ability of the advertising to
stimulate sales, both through the provision of information and throughout persuasive
capabilities. As noted, it would support the fact that ads have a cumulative effect, and the
8. Hierarchy of effects models have been adopted by a number of firms (though sometimes under
different titles, for example, funnel models.) Discuss the value of using hierarchy of effects models
for establishing communications objectives. Are there any weaknesses associated with these
models?(LO4)
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
The text gives a very good example of how the communications effects models can be used
to establish communication objectives for a new brand. Each stage of the response hierarchy
Due to the difficulty in establishing a relationship between advertising and sales directly, the
various steps in the hierarchies are useful for establishing communications objectives.
Because they meet the criteria for sound objectives (measurable, specific, etc), they can be
used to assist in the planning process.
9. In periods of downturns in the economy, many companies slash their advertising and promotions
budgets. Explain why this is not always the best strategy to pursue. (LO7)
Due to the fact that many companies treat advertising and promotions as an expense rather than an
investment, the first budgets to get cut when sales begin to decline are those of marketing. While
common, this is not likely to be an effective strategy.
Many successful companies actually increase their advertising expenditures in hard times for these
very reasons.
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-17
10. As noted in the chapter, there is an increased emphasis on the determination of ROI. Discuss some of
the reasons leading to this increase in attention. Why is it so difficult to measure ROI? (LO7)
For years marketers have wondered about the impact of their promotional expenditures. While some
media, like direct marketing and sales promotion, could demonstrate some of the impact of their
investments, others –particularly advertising—had a much more difficult time doing so. Many
advertisers recognized the difficulties associated with measuring effectiveness, and as a result, made
little or no attempts to do so.
Unfortunately, the measure that most marketers want to see is the impact on sales. Thus, for the most
part, when companies attempt to measure ROI, they attempt to look at the impact of various media
expenditures on sales (or other marketing objectives). Because there are other factors beyond
advertising and promotions that impact sales, it is often difficult to isolate the ROI of the
communications programs specifically. For example, what if the IMC program is very effective, but
the consumer doesn’t like the product? What if the price is too high? What if the product is not
available when the consumer goes to make a purchase? Using sales as the criterion for determining
ROI, could lead to the conclusion that the communications program didn’t work, when in fact it did.
Additional Discussion Question (not in text)
11. Chapter 7 differentiates between communications objectives and sales objectives. Explain the
difference. What are examples of communications objectives? From where are these objectives
derived? (LO3)
As noted in the text, marketing objectives are stated in the marketing plan and refer to what is to be
accomplished by the overall marketing program. These objectives are derived from the marketing
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-18
Communications objectives, while designed to help achieve overall marketing objectives, are those
sought in the development of the communications program. Awareness, knowledge, interest, and
attitude change are just a few examples of communications objectives. As with marketing objectives,
communications objectives must meet the same criteria of effective objectives, e.g. measurability,
attainability, and the like.
12. Exhibit 7-11 reflects the AAAA’s contention that advertisers should not cut their budgets during a
time of recession. Explain why advertisers usually do make cuts in marketing communications
budgets during a recession. Is this likely to be an effective or ineffective strategy? Explain why.
(LO5)
It seems logical to some that when sales start to decline, such as in a period of recession, that
advertising expenditures should be cut. To others, like the AAAA, this is exactly the wrong thing to
do. The primary reason for cutting advertising expenditures during a recession is because many
advertisers consider advertising an expense rather than an investment. When there are less revenues
13. Figure 7-15 reflects the results of a study conducted by Yoo and Mandhachitara that shows that
advertising spending and effects may differ in different competitive environments. Explain each of
the four scenarios presented in Figure 7-15 and give examples of brands in each of these cells. (LO5)
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-19
Advertiser’s Advantage—In this case, one’s brand is stronger than that of the competition. Given the
competitive advantage, the brand should focus on advertising versus other promotional tools. The
reason for this is that advertising serves as a reminder as well as an introduction to the brand. Given
the brand’s strength, incentives—some of which may be costly—are not required. Rather, keeping the
brand in front of the consumer, and maintaining a brand image may be most important. An example
may be the Apple iPod versus other MP3 players. Apple is clearly the dominant brand, and should
focus on communicating its brand image and benefits. There is no need to offer discounts.
Zero-Sum Competition—In a mature market, one of the ways to gain market share is by taking it from
the competition. Thus, increases in advertising may lead to gaining share, and may have to be
matched to ward off the competition by others. Consider the competition between Energizer and
Duracell, while the market for batteries is growing very slowly or may even be flat, both companies
will continue to advertise in attempts to gain share and defend against the other as well.
14. Different companies believe that various media are more important than others for their marketing
purposes. Discuss the various perspectives taken by these companies, and explain why everyone may
not agree on the same level of importance for media. (LO6)
As chapter 7 demonstrates, there are a number of factors that influence the media strategy.
Communications objectives, corporate policies, politics, and the size of the budget are just a few of
these. Because of the difficulty in determining a precise ROI for media, the decision is often
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
As will be clearly demonstrated in Chapters 13, and 15, other media—many not traditional—are the
favor of other companies. The rapid growth of the Internet and Interactive media appeals to many
companies, while others like the new media such as product placements, branded entertainment, etc.,
and are spending more an more monies in these areas.
15. The chapter discusses the fact that the companies that spend the most on advertising do not
necessarily achieve the highest brand value for their products. Sometimes, those who spend very little
are able to achieve this objective. Explain what factors may lead to these results. Provide examples.
The discussion of ROI in the lead-in indicates that budgeting is an imprecise process. Implicit in this
discussion is the fact that some companies may spend more, but achieve less for their investment,
while others—either because of a more effective strategy, or other factors (strong product or brand,
situational elements, etc.)—may be effective at lower expenditure levels. Until a stronger measure of
ROI is achieved, however, there is still a significant “art” to budget setting. Nevertheless, there has
been some research conducted on the ability to achieve higher brand value through advertising.
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-21
16. Figure 7-1 notes the numerous factors that influence sales. Provide examples of products and/or
services that have been directly influenced by each of these factors. (LO6)
Referring to Figure 7-1 of the text, the following chart will indicate influence:
Factor influencing sales Product Impacted Effect of impact
Technology (cell phones) Pay phones Negative—lost revenue
Interestingly, depending on the objectives, one could look at these same factors in a very different
way:
Factor influencing sales Product Impacted Effect of impact
Technology (cell phones) Cell phones Positive—better quality
Economy (recession) Housing Positive—more remodels
17. What is DAGMAR? Explain how marketers might use DAGMAR in establishing objectives.
What are some of the problems associated with the use of DAGMAR? (LO4)
DAGMAR is a model developed by Russell Colley for setting advertising objectives and
measuring the results of an ad campaign. The thesis of the DAGMAR model is that
DAGMAR has been criticized on a number of issues:
a. Problems with response hierarchies—some argue that not all consumers adhere to the
hierarchy of effects model proposed. Steps may be skipped or in a different sequence.
b. Sales objectives—there are those who believe that sales should be the only objective of
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
7-22
18. Marketers expect budget allocations to various media to change over the next few years. Discuss
these changes. Why are some media likely to receive more monies, while others stay the same or
decline?(L07)
A number of factors are operating here. First, there is a definite need to re-allocate funds to
different media, as media habits have changed. Younger audiences are much less inclined to read
the newspapers or news magazines, spend about as much time on the Internet as they do
watching television and have different perspectives than in the past. Thus, to continue to allocate
to media that are used less often, is not a good strategy.
IMC Exercise
Students should find examples of advertisements for several products or services and discuss the specific
types of objectives the marketer may have for these ads. They should explain why sales objectives may be
AdForumExercise: “Using Advertising to Move Consumers Through the Purchase Funnel to
Set Objectives”
(See Advertising and Promotion Playlist, Chapter 7)
As discussed in the chapter, many companies use purchase funnels to guide their communications
objectives. The playlist for Chapter 7 includes a variety of commercials. Review these commercials and
answer the following questions:
Chapter 07 – Establishing Objectives and Budgeting for the Promotional Program
1. What goal do you think that this commercial is attempting to achieve?
2. At what stage of the consumer funnel do you think each commercial will be most likely to be
effective? Explain your answer.
3. Do you think the commercial is attempting to achieve communications or sales oriented
goals, or both? Explain your answer.