Which method of developing an IMC budget is commonly used for new product introductions

All marketing activities at a company are guided by a marketing plan that reflects and communicates careful strategy.

Marketing planners and partners base their efforts on the mission; every marketing activity should support and advance a company’s mission.

We’ll look more closely at some of the marketing plan’s components in a moment.

Based on our definition, what would be a good mission statement for Apple? For Panera? For Home Depot?

Similarly, a company needs to understand its current market situation in order to develop and implement a marketing plan.

The situation analysis outlines all the information that is useful to plan marketing strategy.
-- This will include a description of the brand’s history, market share, growth, profitability, promotional expenditures, and key competitors.

A key element of this process is the SWOT analysis … which presents a picture of the brand in the context of a dynamic business environment.
- Brand history, profit margins, and other data points offer context but little direction.
- The components of a SWOT analysis enable a company to say “What do we have going for us? What’s working against us?” – and to act accordingly.

- The strength and weakness categories of the analysis focus on a company’s capabilities … things a company has considerable control over.
The opportunity and threat categories focus on environmental factors … things a company must respond to.

Name a company or a brand. What are some of its strengths? Weaknesses?
What are some environmental opportunities facing this brand? What are some threats?

These are not vague statements of things a company hopes to accomplish.
To be useful in guiding marketing activities, objectives must be clear, quantifiable (measurable), realistic – and set to be achieved in a defined time period.

Marketing objectives fall into two categories: sales targets and communications.

- Sales target objectives focus on increasing or maintaining sales volume and market share.

- Communication objectives focus on issues such as increased brand awareness and positive consumer attitudes.
> Advertising and other IMC activities tend to be closely associated with communication objectives.

What are some good sales objectives for a brand? Good communication objectives?
Remember that they must be clear, measurable, realistic, and time-specific.

A business succeeds by selling products – by earning revenue and profits.
Yet many experts say that marketing plans should emphasize communication objectives over sales target objectives.

What would explain these experts’ recommendations? The next slide will explain this perspective.

In this model, marketing planners create objectives that relate one of four outcomes:

Awareness is knowing that a brand exists.
Comprehension is knowing about a brand’s benefits or attributes.
Conviction is having a favorable attitude about a brand.
Action, the final step, is purchasing a brand.

Consumers travel through this process in an ordered sequence.
> They first need to be aware of a brand...
> Then they can understand its benefits…
> Knowing the benefits will help them develop a favorable attitude about the brand…
> Which will lead to them purchasing the brand.

The DAGMAR method clearly supports the idea that marketing planning should emphasize communication objectives.

In addition to defining levels of concrete, measurable communication objectives, the DAGMAR method also specifies an audience.

What would be some good DAGMAR objectives for a brand?

Marketing strategy involves three steps:

Select the target market. (We discussed market segmentation and identification in earlier lessons.)
Position the product.
Determine the marketing mix.

- Positioning is a complex concept that we have discussed in an earlier lesson.
Positioning is the place a brand occupies competitively in the minds of consumers; this is based on consumer beliefs.
Every brand has a position—good or bad, real or imagined, intentional or unintentional.

Let’s examine positioning in more detail…

A company can position a product or brand in various ways:
- Product attribute: setting the brand apart by stressing a particular product feature that is important to consumers. How are laundry detergents positioned?
- Price/quality: positioning a product on the basis of price or quality. (Think of ads you see for Mercedes cars or Rolex watches.)
- Use/application: positioning on the basis of how a product is used.
- Product class: positioning the brand against other products that, while not the same, offer the same class of benefits.
- Product user: positioning against the particular group that uses the product.
- Product competitor: positioning against competitors (e.g., Verizon/T-Mobile). (Think about cell phone company commercials that refer to the other carriers.)
- Cultural symbol: positioning apart from competitors through the creation or use of some recognized symbol or icon.

Another way to position a product or brand is by inventing a new product category. What recent brands or products are positioned in this way?

In a top-down approach, the strategy that results from all the planning steps is executed through tactics: specific actions conducted to accomplish a strategic objective.

Smaller companies often don’t have the luxury of spending time, energy, and resources on comprehensive analysis and planning.
- Instead, they tend to follow a bottom-up approach that is guided by marketing tactics.

- In a tactical marketing plan, a company thinks up one or two tactics and then builds a strategy from them to achieve the desired results.

It differs from the traditional processes by mixing marketing and communications planning together rather than separating them.

The IMC approach starts with the customer and then works back to the brand. (Think of our initial discussions on market segmentation, psychographics, and so on.)

In this golden age of information technology, companies can gather detailed, comprehensive, often real-time data on customer behavior.
- This information can then be analyzed and used to plan IMC activities.

Looking at the flowchart, you can see that it all begins with data on customers.

Step 1 segments customers and prospects by factors such as brand loyalty or some measurable purchase behavior.
Step 2 analyzes information on customers to understand their attitudes, history, and how they discover and interact with the brand or product.
This step seeks to determine the best time, place, and situation to build and maintain relationships, to make brand connections.
Step 3 sets marketing objectives based on this analysis, such as building brand loyalty or increasing brand usage.
Step 4 identifies what brand contacts and what changes in attitude are required to support the consumer’s continued purchase behavior or desired change in behavior.
Step 5 maps out communications (promotions) objectives and strategies for reaching consumers and influencing their attitudes, beliefs, and purchase behavior.
Steps 6 and 7 identify what other elements of the marketing mix (product, price, place) and what communication tactics will further encourage the desired behavior.

The first section of an IMC plan restates key information from the marketing plan.

An IMC campaign encourages the target market to take action – but the goal of increasing sales cannot fall on IMC alone.
- Sales goals are overall marketing goals; they are not the objectives of an ad campaign.

Recall from the DAGMAR method that consumers need to be aware of a brand and understand its value before they purchase it.

The mantra to remember when creating an IMC plan is, “Marketing sells, IMC tells.”
- All IMC plan objectives must be related to communication.

Think about a 30-minute infomercial for a juicer or a fancy cooking appliance….
How does it begin? What do the hosts talk about in the first few minutes?
Think about when they take out the perfectly cooked food or the audience tastes the fresh juice and marvels over it.
Can you see the pyramid stages at work in just one 30-minute commercial?

- This commonly occurs with high-involvement purchases that require some research and thought, like a car.
- Impulse purchases follow a do–feel–learn model, in which behavior leads to attitude.
How many of you bought a candy bar at a gas station once, then suddenly you find yourself doing it regularly?
You took an action, the candy made you feel good, so you learned to do it again to get that good feeling.

These effects models are accurate, but the pyramid reflects a traditional mass marketing monologue; the communication is one way – from the marketer to the consumer.

Modern marketing is built on developing relationships with consumers, engaging in a dialogue with them.
- This may be airing a commercial during the Academy Awards and then getting audience comments about the brand and product via Twitter.
- It may be sending coupons for a product in the mail and tracking how many people use them to buy the product.

Exhibit 8-6
Messages go to the customer through advertising and other communication channels. Messages come back via direct response, surveys, and a purchase behavior database. The marketer’s message can evolve based on this feedback.

Richard Vaughn at Foote, Cone & Belding noted that different kinds of products typically evoke different levels of consumer involvement (either high or low) and different types of involvement, either cognitive (think) or affective (feel). This means different products call for different kinds of advertising. He created a two-dimensional model known as the FCB grid, which categorized consumer products into four quadrants based on “high involvement” or “low involvement” and “think” or “feel.”

More recently, academics Kim and Lord recognized that people can be both cognitively and affectively involved at the same time. So they developed the Kim–Lord grid, described on the next slide.

Different kinds of products spark different levels of consumer involvement (either high or low).
They also evoke different types of involvement, cognitive (think) or affective (feel).
- What this means is that advertising is not a one-size-fits-all endeavor.
- Different products require different types of advertising messages.

The Kim-Lord grid is one model that illustrates the level of involvement and type of involvement that people bring to a particular purchase decision.
Do you think much – and feel much – about buying some paper towels?
Do you think much – and feel much – about buying a car?
You probably think and feel a little less about buying shampoo than buying a car – but it’s probably higher than buying paper towels.
Is this grid universal for all consumers? How many women would place a shampoo purchase in this quadrant?
Men… where would you place shampoo on this grid? The same quadrant? A different one?

The position of a product on the grid helps guide how a message should be shaped – more emotional for a high-involvement product, more rational for a low involvement product.

When marketing consumer goods, increases in market share are closely related to increases in the marketing budget.
-- And healthy market share usually means healthy profits.

Sales normally increase with additional advertising. At some point, however, the rate of return plateaus and then declines.

Sales in response to advertising may build over time, but the durability of advertising is brief, so a consistent investment is important.
How long do you usually remember a particular ad? How long can it influence you to make a purchase?

Advertising is an investment; if you don’t invest much, you won’t get much in return. Advertising expenditures below certain minimum levels have no effect on sales.

- Some sales will occur even if there is no advertising. And that’s a good thing, but it’s not a reason to stop all advertising.

- There can be a saturation point in a market where no amount of advertising will increase sales.

Economic, political, social, and legal factors can affect total industry sales and corporate profits on sales.

What are the institutional and competitive environments?
What is the level of sales within the industry?
How much are competitors spending, and what are they doing that might either help or hinder the company’s marketing efforts?

The internal environment also affects IMC budgeting.
Do the company’s current policies and procedures allow it to fulfill the promises its campaign intends to make?

Some methods include:

> Percentage of sales – The IMC budget is determined by allocating a percentage of the previous year’s sales, next year’s anticipated sales, or a combination of the two.
-- The percentage is usually based on an industry average, company experience, or an arbitrary figure.
-- This is one of the most popular ways to set advertising budgets.
-- This method does have some drawbacks:
- Marketing activities should stimulate demand and thus sales, not occur as a result of sales.

According to this method, the IMC budget would automatically decrease when sales decline. How is this a problem?

- Also, rather than encouraging planners to think carefully about the budget for accomplishing objectives, it forces them to develop objectives that fit the budget.

- Ad expenditures are allocated by maintaining a percentage share of total industry spending comparable to or somewhat ahead of the desired share of market.

- This method is often used for new products.
When a brand is introduced, the budget share for the first two years should be about one and a half times the brand’s targeted market share in two years.

If a company wants to gain 20 percent of the market with its new product, its advertising budget for the product should be what? (30 percent of total industry expenditures)

- The company’s share of all promotional spending is called “share of voice.”

- This approach sees IMC as a marketing tool to generate sales.
- The three steps of the method are defining objectives, determining strategy, and estimating cost.

After setting specific, quantitative communication objectives, the company develops a strategy to attain them.

The details of the strategy – the various communication tactics – serve as the basis for the budget expenditures.

- The ad budget may be revised if the proposed costs can’t be supported by the company.
- Based on the campaign’s performance in achieving the objectives, subsequent budgets may be revised up or down.

The first fallacy is that IMC is a result of sales.
Marketers know this is not true, yet percentage-of-sales is still a very common method to set ad budgets.

The second fallacy is that IMC creates sales.
This is the case in some instances, such as direct response ads, however the primary role of IMC is to influence consumers by informing, persuading, and reminding.

The reality is that IMC only affects sales.
IMC works to reinforce existing customers, locate new prospects, position the product, build brand equity, and stimulate demand.
Companies must keep this reality in mind when preparing their IMC plans and budgets.