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Media Strategy is about setting Media Budgets

Media strategies

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Page 1: Media strategies

Media Strategyis about setting

Media Budgets

Page 2: Media strategies

Budgeting Decisions

Two major decisions

• Establishing the size of the budget

• Allocating the budget

Budgeting decisions involve determining how much money will be spent on advertising and promotion each year and how the monies will be allocated

Page 3: Media strategies

Marginal Analysis

A firm should continue to add to its budget as long as incremental expenditures are exceeded by the marginal revenue they generate

This theoretical underpinning assumes a functional relationship between advertising and sales

Page 4: Media strategies

Marginal Analysis

Advertising / Promotion in $

Sa

les

in

$

Point A

Profit

Sales Gross Margin

Ad. Expenditure

Page 5: Media strategies

BASIC Principles of Marginal Analysis

IncreaseIncrease Spending . . . IF:The increased cost is less than the incremental (marginal) return.

DecreaseDecrease Spending . . . IF:The increased cost is more than the incremental (marginal) return.

HoldHold Spending Level. . . IF:The increased cost is equal to the incremental (marginal) return.

Page 6: Media strategies

Problems with Marginal Analysis

Assumption: Sales are the principal objective of advertising

and/or promotion.

Assumption: Sales are the result of advertising and

promotion and nothing else.

Page 7: Media strategies

Other Problems with Marginal Analysis

– The determination of the shape, and the parameters of their relationship is difficult - linier / curved / S shaped

– The market is a dynamic environment and this relationship changes through time

– Apart from the other 3Ps Sales is also affected by

• The type of creative• The selection of media• The selection of markets

Page 8: Media strategies

Advertising Sales/Response Functions

Incr

em

enta

l Sa

les

Advertising Expenditures

A. Concave-Downward Response Curve

Incr

em

enta

l Sa

les

Advertising ExpendituresRange A Range B Range C

B. S-Shaped Response Function

Hig

h S

pen

din

gL

ittle Effect

Initial S

pen

din

gL

ittle Effect

Mid

dle L

evelH

igh

Effect

Page 9: Media strategies

Top Management Sets the

Spending Limit

The Promotion Budget Is Set to Stay Within the Spending Limit

Top-Down Budgeting

Page 10: Media strategies

Top-Down Approaches Percentage of Sales Method

Set percentage of sales or amount per unit.• Does not consider the dynamic brand situations and leads to -

– established brands – over spending– young new entrants – under spending– repositioned brands – under spending

Competitive Parity Method Match competitor or industry average spending.

– Industry is spending at the optimum level – Each Company’s needs are not unique

The Affordable Method What we have to spare. What's left to spend. Sales are independent of / the cause of advertising expense

Return on Investment Method Spending is treated as a capital investment.

Arbitrary Allocation Method No system. ‘Seemed like a good idea at the time.’

Page 11: Media strategies

Share of Voice and Ad Spending

Page 12: Media strategies

Data Based Response Function Approaches of Budgeting

• Field experimentation

• Split-cable testing

• Regression analysis

• Optimal repetition frequency

Page 13: Media strategies

Market Experimentation

Advertising spends are deliberately and systematically varied across areas. Sales are monitored over years and related to the spends

• Problems with market experimentation –– Expensive

» High cost of the experiment» Management decisions are delayed» Security costs» Excessive advertising and under advertising in some

areas– The experiment can not be controlled as desired – may be

an increase in trade / sales team efforts, etc

Page 14: Media strategies

Split-cable TestingAn improvement over Field Experiments

– The ability to control exposure levels and monitor purchase is better

– Impact of other in-shop activities are monitored– Hidden from competitors– Sales are closely monitored

The problems– Very very expensive– Lengthy – conditions may change making results

obsolete – Experiment can be over controlled– The shape of the relationship between advertising and

sales must be determined– Masses of data to be analyzed– May not be representative of all markets– Does not give the effect of advtg. on trade

Page 15: Media strategies

Regression Analysis

Based on historical patterns of sales and advertising – It is important to isolate the carry over impact of previous

advertising– Impact of creative and media mix should be considered– Impact of other marketing variables must be factored– The competitor’s advertising and other environmental factors must

be considered

The Problems– Calls for statisticians– Measuring the carry over effect of advertising is difficult– Lack of variability of advertising data – other than the seasonality

effect– Lack of data on confounding factors – competitor’s actions– Data may be faulty, inadequate, expensive to procure– Percentage of Sale method of budgeting may have been adopted

Page 16: Media strategies

Total Budget Is Approved byTop Management

Bottom-Up Budgeting

Cost of Activities are Budgeted

Activities to Achieve ObjectivesAre Planned

Promotional Objectives Are Set

Page 17: Media strategies

Objective and Task Method

Establish Objectives(create awareness of new product among 20 percent of target market)

Establish Objectives(create awareness of new product among 20 percent of target market)

Determine Specific Tasks(advertise on market area television and radio and local newspapers)

Determine Specific Tasks(advertise on market area television and radio and local newspapers)

Estimate Costs Associated with Tasks(create awareness of new product among 20 percent of target market)

Estimate Costs Associated with Tasks(create awareness of new product among 20 percent of target market)

Page 18: Media strategies

Optimal Repetition Frequency Number of consumers to be Reached to achieve the sales objective

X

Number of ad exposures - Frequency needed for each consumer in a purchase cycle for the advertising objective to be met.

xCost per exposure ( unit cost

divided by readership)

= Media Budget

Deriving Target Reach• Derived from the sales (incremental) objective

Determining Effective Frequency level – minimum number of exposures in a purchase cycle

• 1st exposure experience- ‘What is it?’ response• 2nd exposure experience ’What of it?’ response• 3rd exposure experience ‘Ah I have seen it before’ response

Page 19: Media strategies

Optimal Frequency and Wear-out

Wear- Out : sets in with too much repetition. Recall, Attitude and Purchase Intention levels off / declines

‘Wear-out’ is the maximum number of insertions for any particular ad execution

– Because people get irritated and less attentive to repetitive advertising

– Wear-out is greater when the message is old, simple and humorous

Wear-out is combated by – spacing commercials– using multiple media– with varied creative executions (pool-outs)

Page 20: Media strategies

More Frequency is Required….• More frequency is needed in certain

situations– A new brand / campaign (more interesting) – Message is more complex – The message is more reliant on mood and

imagery– Brand associations are to be developed – people,

feelings –Transformational Advertising

• Wear in and wear out is higher » when people are more involved with the

product category / experts » When it is a largely rational ad

Page 21: Media strategies

Payout PlanningTo determine how much to spend,

marketers develop a payoutpayout planplan that determines the investment value of the advertising and promotion appropriation

Example of a three-year payout plan ($ millions)

Year 1 Year 2 Year 3Product sales 15.0 35.50 60.75Profit contribution(@$.50 per case) 7.5 17.75 30.38Advertising/promotions 15.0 10.50 8.50Profit (loss) (7.5) 7.25 21.88Cumulative profit (loss) (7.5) (0.25) 21.63

Page 22: Media strategies

Allocating the IMC Budget

Client/Agency Policies Size of Market Market Potential Market Share Goals Market Share and Economies of Scale Organizational Characteristics

Factors Affecting Allocation to Various IMC Elements