We have looked at the steps in planning and sending communications to a target audience. But how does the company decide on the total promotion budget and its division among the major promotional tools to create the promotion mix? We now look at these questions.
Setting the Total Promotion Budget
One of the hardest marketing decisions facing a company is how much to spend on promotion. John Wanamaker, an American department store magnate, once said: 'J know that half of my advertising is wasted, but I don't know which half. I spent $2 million for advertising, and 1 don't know if that is half enough or twice too much.' It is not surprising, therefore, that industries and companies vary widely in how much they spend on promotion. Promotion spending may be 20-30 per cent of sales in the cosmetics industry and only 5-10 per cent in the industrial machinery industry. Within a given industry, both low and high spenders CM be found.
How does a company decide on its promotion budget? There are four common methods used to set the total budget for advertising: the affordable method, the percentage-of-sales method, the competitive-parity method and the objective-and-task method.''
Affordable Method
A common 'rule-of-thumb' used by many companies is the affordable method: they set the promotion budget at the level they think the company can afford. They start with total revenues, deduct operating expenses and capital outlays. and then devote some portion of the remaining funds to advertising.
Feedback measurements for two brands
Unfortunately, this method of setting budgets completely ignores the effect of promotion on sales. It tends to place advertising last among spending priorities, even in situations where advertising is critical to the firm's success. It leads to an uncertain annual promotion budget, which makes long-range market planning difficult. Although the affordable method can result in overspending on advertising, it more often results in underspending.
Percentage-of-Sales Method
In the percentage-of-sales method, marketers set their promotion budget at a certain percentage of current or forecast sales. Or they budget a percentage of the sales price. Automotive companies usually budget a fixed percentage for promotion based on the planned car price. Fast-moving consumer goods companies usually set it at some percentage of current or anticipated sales.
The pereentage-of-sales method has advantages. It is simple to use and helps managers think about the relationship between promotion spending, selling price and profit per unit. The method supposedly creates competitive stability because competing firms tend to spend about the same percentage of their sales on promotion.
Despite these claimed advantages, however, there is little to justify the method. It wrongly views sales as the cause of promotion rather than as the result.'" The budget is based on availability of funds rather than on opportunities. It may prevent the increased spending sometimes needed to turn around falling sales. It fails to consider whether a higher or lower level of spending would be more profitable. Because the budget varies with year-to-year sales, long-range planning is difficult. Finally, the method does not provide any basis for choosing a specific percentage, except what has been done in the past or what competitors are doing.
Setting the promotion budget at a certain percentage of current or forecast sales or as a percentage of the sales price.
Competitive-Parity Method
Other companies use the competitive-parity- method, setting their promotion budgets to match competitors' outlays. They watch competitors' advertising or get industry promotion-spending estimates from publications or trade associations, and then set their budgets based on the industry average.
Two arguments support this method. First, competitors' budgets represent the collective wisdom of the industry. Second, spending what competitors spend helps prevent promotion wars. Unfortunately, neither argument is valid. There are no grounds for believing that the competition has a better idea of what a company should be spending on promotion than does the company itself, Companies differ greatly, in terms of market opportunities and profit margins, and each has its own special promotion needs. Finally, there is no evidence' that budgets based on competitive parity prevent promotion wars.
Objective-and-Task Method
The most logical budget-setting method is the objective-and-task method, whereby the company sets its promotion budget based on what it wants to accomplish with promotion.
The method entails:
- defining specific objectives;
- determining the tasks needed to achieve these objectives
- estimating the costs of performing these tasks.
The sum of these costs is the proposed promotion budget.
The objective-and-task method forces management to spell out its assumptions about the relationship between amount spent and promotion results, But it is also the most difficult method to use. Managers have to set sales and profit targets and then work back to what tasks must be performed to achieve desired goals. Often it is hard to figure out which specific tasks will achieve specific objectives. For example, suppose Sony wants 95 per cent awareness for its latest camcorder model during the six-month introductory period. What specific advertising messages and media schedules would Sony need in order to attain this objective? How much would these messages and media schedules cost? Sony management must consider such questions, even though they arc hard to answer. By comparing the campaign cost with expected profit gains, the financial viability of the promotions campaign can be determined.
The main advantage of this method is that it forces managers to define their communication objectives, to determine die extent to which each objective will be met using selected promotion tools and the financial implications of alternative communication programmes.
Setting the Promotion Mix
The company must divide the total promotion budget among the main promotion tools - advertising, personal selling, sales promotion and public relations. It may also have to decide just how much of its promotions will involve direct marketing. It must blend the promotion tools carefully into a co-ordinated promotion mix. Companies within the same industry differ greatly in how they design their promotion mixes. For example, Avon spends most of its promotion funds on personal selling and catalogue marketing, whereas Revlon spends heavily on consumer advertising. Electrolux sells most of its vacuum cleaners door to door, whereas Hoover relies more on advertising and promotion to retailers.
Companies are always looking for ways to improve promotion by replacing one promotion tool with another that will do the same job more economically.
Many companies have replaced a portion of their field sales activities with telephone sales and direct mail. Other companies have increased their sales promotion spending in relation to advertising to gain quicker sales.
Designing the promotion mix is even more complex when one tool must be used to promote another. Thus when British Airways decides to offer air miles for flying with the company (a sales promotion), it has to run ads to inform the public. When Lever Brothers uses a consumer advertising and sales promotion campaign to hack a new washing powder, it has to set aside money to promote this campaign to the resellers to win their support.
Many factors influence the marketer's choice of promotion tools. We now look at these factors.
The Nature of each Promotion Tool
Marketers have to understand the unique characteristics and the costs of each promotion tool in deciding the promotion mix. Let us examine each of the major tools.
ADVERTISING. The many forms of advertising make it hard to generalize about its unique qualities. However, several qualities can be noted:
- Advertising can reach masses of geographically dispersed buyers at a low cost per exposure.
- Because of advertising's public nature, consumers tend to view advertised products as standard and legitimate - buyers know that purchasing the product will be understood and accepted publicly.
- Advertising enables the seller to repeat a message many times, and it lets the buyer receive and compare the messages of various competitors.
- Large-scale advertising by a seller says something positive about the seller's size, popularity and success.
- Advertising is also very expensive, allowing the company to dramatize its products through the artful use of print, sound and colour.
- On the one hand, advertising can be used to build up a long-term image for a product (such as Coca-Cola ads). On the other hand, advertising can trigger quick sales (as when a department store advertises a weekend sale).
- Advertising can reach masses of geographically spread-out buyers at a low cost per exposure.
Advertising also has some shortcomings:
- Although it reaches many people quickly, advertising is impersonal and cannot be as persuasive as company salespeople.
- Advertising is only able to carry on a one-way communication with the audience, and the audience does not feel that it has to pay attention or respond.
- In addition, advertising can be very costly. Although some advertising forms, such as newspaper and radio advertising, can be done on smaller budgets, other forms, such as network TV advertising, require very large budgets.
PERSONAL SELLING
Personal selling is the most effective tool at certain stages of the buying process, particularly in building up buyers' preferences, convictions and actions. Compared to advertising, personal selling has several unique qualities;
Food companies mounting such promotions because dinosaurs were ruled as not kosher. Moreover, they died 65 million years ago, so the rabbinical authorities decreed that they could never have existed as the world was created only 5,753 years ago.
It is difficult to decide whether the children themselves create the trends or simply follow them. Nevertheless, most promoters agree that promotions linked to current firm to 'strike the right note', while avoiding ven- crazes have a superior chance of success, so long turing too far into the delicate area of 'pester as they follow trends discriminatingly and ensure power'. Parents are all too familiar with pester that they do not conflict with the product. power — the child's demand for the latest craze, be it a food or toy, that has been hyped on television. Observers argue that, in the long run, it is the fun promotions that are educational and offer real value to target consumers which will build brand loyalty.
Creating Brand Loyalty
One of the most successful kids' crazes in recent years has been dinosaurs - Dino stickers, Dino cups, Dino cards, Dino games, Dino crisps, Dino biscuits all stalked supermarket shelves. (Remember Ninja Turtles? Well, the story is very much the same, although parents were spared Ninja Turtle crisps and biscuits!) The Spielberg blockbuster Jurassic Park was partly responsible, but manufacturers and merchandisers have also deliberately focused upon kids' interest in the dinosaur itself - they learn about dinosaurs at school, how they lived and the mystery of their extinction. McDonald's, the restaurant chain, was one of the many big names which signed up for a themed promotion, where kids could collect all six of its Jurassic Park cups. McDonald's argues that 'children are very finicky and anything that is of the moment will interest them, ... this means you will have to be on top of the trends'. McDonald's, however, is a consistent investor in promotions, as reflected in its long-standing 'Happy Meals' offer for children. The challenge lies in maintaining the appeal of the offers, which calls for creativity in value creation.
Promotions for Children: Can Childish Things Build Sates arid Brand Loyally?
Many consumer-goods com panics consciously target their sales promotions at kids. They argue that it is great for building sales and loyalty. Manufacturers also agree that children are not easy targets. They are fickle, so it is crucial for the
Banking Up Promotions
Jacob's, a biscuit manufacturer, joined the dinosaur boom and successfully launched dinosaur biscuits throughout Europe. The biscuits were promoted on television and in cinemas, and the company also sponsored a dinosaur exhibition at London's Alexandra Park. Extensive back-up is often required to build awareness for the promotion as well as to maintain the momentum over its duration.
In the United Kingdom. Rayner Burgess invested in a mix of promotional tools for Crusha, its milk drink - PR, sales promotions and competitions in women's magazines and youth press, and samplings at the Milk Marketing Board and National Dairy Council roadshows around the country.
What Appeals to Children? T-shirts seem to be a big hit. Crusha offered T-shirts that changed design when worn, which reported a redemption of 250 per cent higher than any previous offer it promoted. Parents liked the product as it encouraged kids to drink milk. The promotion also added genuine value to the product - kids do not just want instant appeal with no substance. Walkers (crisps) offered Looney Tunes T-shirts, which also worked beeause they were made relevant and desirable by picking up one of the most popular characters within die Looney Tunes portfolio, the Tasmanian Devil, and positioning it as the Big Taz T. The T-shirt itself was promoted on design and quality. Even the colour was carefully chosen -kids prefer coloured T-shirts to white.
Experts suggest that other items like stickers and models retain popularity. If these also leak into the current crazes, they have a good chance of success. Although kids still prefer traditional items, practitioners draw attention to two main considerations when planning sales promotions for children. First, children are usually more comfortable with modern technology than their parents are. so the promoter must avoid patronizing them. Secondly, children enjoy the challenge of being required to make some effort (e.g. participate in competitions, or patiently collect tokens). Parents, on the other hand, may find it hard to summon the energy for such tasks, but can find the motivation if the effort is worth it (e.g. educational, enthuses the child) and offers genuine value. Thus, childish things can build sales and loyalty but it's not child's play.
- It involves personal interaction between two or more people, so each person can observe the other's needs and characteristics and make quick adjustments.
- Personal selling also allows all kinds of relationships to spring up, ranging from a matter-of-fact selling relationship to a deep personal friendship. The effective salesperson keeps the customer's interests at heart in order to build a long-term relationship.
- Finally, with personal selling the buyer usually feels a greater need to listen and respond, even if the response is a polite 'no thank you'.
These unique qualities come at a cost, however. A sales force requires a longer-term commitment than does advertising - advertising can be turned on and off, but sales force size is harder to change. Personal selling is also the company's most expensive promotion tool, costing industrial companies an average of almost £200 per sales call.
SALES PROMOTION
Sales promotion includes a wide assortment of tools -coupons, contests, price reductions, premium offers, free goods and others - all of which have many unique qualities:
- They attract consumer attention and provide information that may lead to a purchase.
- They offer strong incentives to purchase by providing inducements or contributions that give additional value to consumers,
- Moreover, sales promotions invite and reward quick response. Whereas advertising says 'buy our product', sales promotion offers incentives to consumers to 'buy it now'.
Companies use sales promotion tools to create a stronger and quicker response. Sales promotion can be used to dramatize product offers and to boost sagging sales. Sales promotion effects are usually short-lived, however, and are not effective in building long-run brand preference. To work, manufacturers must carefully plan the sales promotion campaign and offer target customers genuine value. Only then will they enhance perceived brand image, build sales and maintain customer loyalty.
Relative importance
Relative importance of promotion tools in consumer versus industrial markets
PUBLIC RELATIONS
Public relations or PR offers several unique qualities, It is all those activities that the organization does to communicate with target audiences which are not directly paid for.
- PR is very believable: news stories, features and events seem more real and convincing to readers than ads do.
- Public relations can reach many prospects who avoid salespeople and advertisements, since the message gets to the buyers as 'news' rather than as a sales-directed communication.
- And, like advertising, PR can dramatize a company or product. The Body Shop is one of the few international companies that have used public relations as a more effective alternative to mass TV advertising-
Marketers tend to underage public relations or to use it as an afterthought. Yet a well-thought-out public relations campaign used with other promotion-mix elements can be very effective and economical.
DIRECT MARKETING
Although there are many forms of direct marketing -direct mail, telemarketing, electronic marketing, online marketing and others-they all share four distinctive characteristics.
- Direct marketing is non-public as the message is normally addressed to a specific person.
- Direct marketing is immediate and customized, so messages can be prepared quickly and tailored to appeal to specific customers.
- Direct marketing is interactive: it allows a dialogue between the communicator and the consumer, and messages can be altered depending on the consumers?
Thus, direct marketing is well suited to highly targeted marketing efforts and to building one-to-one relationships.
Factors in Setting the Promotion Mix
Companies consider many factors when developing their promotion mixes; namely, the type of product/market, the use of a push or pull strategy, the buyer-readiness stage and the product life-cycle stage.
Advertising, can play a dramatic role in industrial marketing, as shown in this classic McGraw-Hill ad.
TYPE OF PRODUCT/MARKET
The importance of different promotional tools varies between consumer and business markets (see Figure 18.5). Consumer-goods companies usually put more of their funds into advertising, followed by sales promotion, personal selling and then public relations. Advertising is relatively more important in consumer markets beeause there are a larger number of buyers, purchases tend to be routine, and emotions play a more important role in the purchase-decision process. In contrast, industrial-goods companies put most of their funds into personal selling, followed by sales promotion, advertising and public relations, In general, personal selling is used more heavily with expensive and risky goods, and in markets with fewer and larger sellers.
Although advertising is less important than sales Galls in business markets, it still plays an important role. Advertising can build product awareness and knowledge, develop sales leads and reassure buyers. Similarly, personal selling can add a lot to consumer goods marketing efforts, !t is simply not the case that 'salespeople put products on shelves and advertising takes them off. We 11-trained consumer-goods salespeople ean sign up more dealers to carry a particular brand, convince them to give more shelf space and urge them to use special displays and promotions.
PUSH VERSUS PULL STRATEGY
The promotional mix is influenced by whether the company ehooses a push or pull strategy. Figure 18.6 contrasts the two strategies. A push strategy involves 'pushing' the product through distribution channels to final consumers. The firm directs its marketing activities (primarily personal selling and trade promotion) towards channel members to induce them to carry the product and to promote it to final consumers. Using a pull strategy, the producer directs its marketing activities (primarily advertising and push strategy A promotion strategy tluit valla for using tlie safes farce and trade promotion to push the product through channels. Theproducer promotes the product to wholesalers, the wholesalers promote to retailers, and the retailers promote to consumers.
Pull strategy
A promotion strategy that calls for spending a lot on advertising arid consumer promotion to build up consumer demand. If the. strategy is successful, consumers will usk tlieir retailers for tlie product, the retailers will ask the wholesalers, and the wholesalers will ask the producers.
Push versus pull promotion slratcgy
If the pull strategy is effective, consumers will then demand the product from channel members, which will in turn demand it from producers. Thus under a pull strategy, consumer demand 'pulls' the product through the channels.
Some small in dust rial-goods, companies use only push strategies; some direct-marketing companies use only pull. However, most large companies use some combination of both. For example, Lever Brothers uses mass-media advertising to pull consumers to its products and a large sales force and trade promotions to push its products through the channels.
In recent years, consumer-goods companies have been decreasing the pull portions of their promotion mixes in favour of more push. There are a number of reasons behind this shift in promotion strategy. One is that mass-media campaigns have become more expensive and many companies in Europe, the United States and Japan have cut back due to recessionary pressures over the early 1990s. Many firms have also found advertising less effective in recent years. Companies are increasing their segmentation efforts and tailoring their marketing programmes more narrowly, making national advertising less suitable than localized retailer promotions. In these days of heavy brand extensions and me-too products, many companies are finding it difficult to feature meaningful product differentiations in advertising. Instead, they differentiate their brands through price reductions, premium offers, coupons and other promotions aimed at the trade.
The growing strength of retailers is also a key factor speeding the shift from pull to push. Big retail chains in Europe and the United States have greater access to product sales and profit information. They have the power to demand and get what they want from suppliers. And what they want is margin improvements -that is. more push. Mass advertising bypasses them on its way to the consumers, but push promotion benefits them directly. Consumer promotions give retailers an immediate sales boost and cash from trade allowances pads retailer profits. So, manufacturers arc compelled to use push promotions just to obtain good shelf space and advertising support from their retailers.
However, reckless use of push promotion leads to fierce price competition and a continual spiral of price slashing and margin erosion, leaving less money to invest in the product R & D, packaging and advertising" that is required to improve and maintain long-run consumer preference and loyalty. Robbing the advertising budget to pay for more sales promotion could mortgage a brand's long-term future
for short-term gains. While push strategies will remain important, particularly in packaged-goods marketing, companies that find the best mix between the two -consistent advertising to build long-run brand value and consumer preference and sales promotion to create short-run trade support and consumer excitement — are most likely to win the battle for loyal and satisfied customers.
BUYER-READINESS STAGE
The effects of the promotional tools vary for the different buyer-readiness stages. Advertising, along with public relations, plays the leading role in the awareness and knowledge stages, more important than that played by 'cold calls' from salespeople. Customer liking, preference and eonvie-tion are more affected by personal selling, which is closely followed by advertising. Finally, closing the sale is mostly done with sales calls and sales promotion. Clearly, advertising and public relations are the most cost effective at the early stages of the buyer decision process, while personal selling, given its high costs, should focus on the later stages of the customer buying process.
PRODUCT LIFE CYCLE STAGE
The effects of different promotion tools also vary with stages of the product life cycle. In the introduction stage, advertising and public relations are good for producing high awareness, and sales promotion is useful in getting early trial. Personal selling efforts must be geared to persuading the trade to carry the product. In the growth stage, advertising and public relations continue to be powerful influences, whereas sales promotion can be reduced because fewer incentives are needed. In the mature stage, sales promotion again becomes important relative to advertising. Buyers know the brands ant! advertising is needed only to remind them of the product. In the decline stage, advertising is kept at a reminder level, public relations is dropped and salespeople give the product only a little attention. Sales promotion, however, might continue at a high level in order to stimulate trade and prop up sales to customers.
The Changing Face of Marketing Communications
During the past few decades, companies around the world have perfected the art of mass marketing—selling highly standardized products to masses oi customers. In the process, they have developed effective mass-media advertising techniques to support their mass-marketing strategies. These companies routinely invest huge sums of money in the mass media, reaching tens of millions of customers with a single ad. However, as we move into the twenty-first century, marketing managers are facing some new marketing communications realities.
The Changing Communications Environment
Two major factors are changing the face of today's marketing communications. First, as mass markets have fragmented, marketers are shifting away from mass marketing. More and more, they are developing focused marketing programmes designed to build closer relationships with customers in more narrowly defined micro markets. Second, vast improvements in computer and information technology are speeding the movement towards segmented marketing. Today's information technology helps marketers to keep closer track of customer needs - more information is available about customers at the individual and household levels than ever before. New technologies also provide new communications avenues for reaching smaller customer segments with more tailored messages.
The shift from mass marketing to segmented marketing has had a dramatic impact on marketing communications. Just as mass marketing gave rise to a new generation of mass-media communications, so the shift towards one-to-one marketing is spawning a new generation of more specialized and highly targeted communications efforts.
Given this new communications environment, marketers must rethink the roles of various media and promotion-mix tools. Mass-media advertising has long dominated the promotion mixes of consumer-product companies. However, although television, magazines and other mass media remain very important, their dominance is declining. Market fragmentation has resulted in media fragmentation - in an explosion of more focused media that better match today's targeting strategies. For example, back in the 1970s and 1980s, in many developed countries, the three or four major TV networks attracted a majority of the nation's viewing audience. By the mid-1990s, that number had dropped significantly as cable television and satellite broadcasting systems offered advertisers dozens or even hundreds of alternative channels that reach smaller, specialized audiences. Similarly, there has been a proliferation of special-interest magazines in recent decades, reaching more focused audiences. Beyond these media channels, companies are making increased use of new, highly targeted media, ranging from video screens on supermarket shopping trolleys to CD-ROM catalogues, online computer services and Web sites on the Internet.
More generally, advertising appears to be giving way to other elements of the promotion mix. In the glory days of mass marketing, consumer-product companies, such as Heinz, P & G and Mars, spent the lion's share of their promotion budgets on mass-media communications. Today, media advertising captures a much reduced proportion of die total promotion spend.'4 The rest goes to various sales promotion activities, which can be focused more effectively on individual consumer and trade segments. In all, companies are doing less broadcasting and more narro-wcasting, relying on a richer variety of focused communication tools which allow them to reach their many and diverse target markets.
Integrated Marketing Communications
The recent shift from mass marketing to targeted marketing, and the corresponding use of a richer mixture of communication channels and promotion tools, poses a problem for marketers. Consumers are being exposed to a greater variety of marketing communications from and about the company from a broader array of sources. However, customers do not distinguish between message sources in the way marketers do. In the consumer's mind, advertising messages from different media such as television, magazines or online sourees blur into one. Messages delivered via different promotional approaches - such as advertising, personal selling, sales promotion, public relations or direct marketingall become part of a single overall message about the company. Conflicting messages from these different sources can result in confused company images and brand positions.
All too often, companies fail to integrate their various communications channels. The result is a hodgepodge of communications to consumers. Mass advertisements say one thing, a price promotion sends a different signal, a product label creates still another message, company sales literature says something altogether different and the company's Web site seems out of sync with everything else.
The problem is that these communications often come from different company sources. Advertising messages are planned and implemented by the advertising department or advertising agency. Persona! selling communications are developed by sales management. Other functional specialists are responsible for public relations, sales promotion, direct marketing, online sites and other forms of marketing communication. Moreover, members of various departments often differ in their views on how to split the promotion budget. The sales manager would rather hire a few more salespeople than spend £150,000 on a single television commercial. The public relations manager feels that he or she can do wonders with some money shifted from advertising to public relations.
In the past, no one person was responsible for thinking through the communication roles of the various promotion tools and co-ordinating the promotion mix. Today, however, more companies are adopting the concept of integrated marketing eonimunications (IMG). Under this concept, the company carefully integrates and co-ordinates its many communications channels - mass-media advertising, personal selling, sales promotion, public relations, direct marketing, packaging and others - to deliver a clear, consistent and compelling message about the organization and its products. It builds a strong brand identity in the marketplace by tying together and reinforcing all the company's positioning, images and messages across all its marketing communications venues. It means that your PR materials say the same thing as your direct mail campaign, and your advertising has the same "look and feel' as its Web site. When Japanese car maker Honda launched its new five-door Civic, the company used an integrated approach whereby its agencies were obliged to co-operate with each other to generate the same branding and visuals across its TV ads, direct marketing and sales promotion.
The company works out the roles that the various promotional tools will play and the extent to which each will be used. It carefully co-ordinates the promotional activities and the timing of when major campaigns take place. It keeps track of its promotional expenditures by product, promotional tool, product life-cycle stage and observed effect in order to improve future use of the promotionmix tools. Finally, to help implement its integrated marketing strategy, the company appoints a marketing communications director who has overall responsibility for the company's communications effort. To integrate its external communications effectively, the company must first integrate its internal communications activities.
Integrated marketing communications produces better communications consistency and greater sales impact. It places the responsibility in someone's hands - where none exisfed before - to unify the company's image as it is shaped by thousands of company activities. It leads to a total marketing communication strategy aimed at showing how the company and its products can help customers solve their problems.
Integrated marketing communications
The concept under which a company carefully integrates and co-ordinates its many communications channels to defers; r a clear, consistent, and compelling message about the organisation and its products.
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