Marketing Communications - Chapter 7 doc

© 2010 South-Western, a part of Cengage Learning
All rights reserved.
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Eighth Edition
Overview of Advertising
Management
CHAPTER
7
1. Understand the magnitude of advertising and the
percentage of sales revenue companies invest in this
marcom tool.
2. Appreciate that advertising can be extraordinarily
effective but that there is risk and uncertainty when
investing in this practice.
3. Recognize the various functions that advertising
performs.
4. Explore the advertising management process from
the perspective of clients and their agencies.
Chapter Objecves
After reading this chapter you should be able to:
© 2010 South-Western, a part of Cengage Learning. All rights reserved. 7–2
5. Understand the functions agencies perform and how
they are compensated.
6. Explore the issue of when investing in advertising is
warranted and when disinvesting is justified.
7. Examine advertising elasticity as a means for
understanding the contention that “strong advertising
is a deposit in the brand equity bank.”
Chapter Objecves (cont’d)
After reading this chapter you should be able to:

© 2010 South-Western, a part of Cengage Learning. All rights reserved. 7–3
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–4
Is Advertising Rocket Science?
Is Advertising Rocket Science?
•
“
“
The truth is that
The truth is that
advertising is harder
advertising is harder
than rocket science.
than rocket science.
It’s news when a
It’s news when a
rocket launch fails.
rocket launch fails.
It’s news when an
It’s news when an
ad campaign launch
ad campaign launch
succeeds.”
succeeds.”
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–5

Introduction
Introduction
•
Advertising Defined
Advertising Defined

A paid, mediated form of communication from an
A paid, mediated form of communication from an
identifiable source, designed to persuade the receiver
identifiable source, designed to persuade the receiver
to take some action, now or in the future
to take some action, now or in the future
•
Types of Advertising
Types of Advertising

Business to Consumer (B2C)
Business to Consumer (B2C)

Business to Business (B2B)
Business to Business (B2B)
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–6
Example of the Use of Humor in B2B Advertising
Figure 7.1
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.

7–7
The Magnitude of Advertising
The Magnitude of Advertising
United States:
United States:
$294 billion
$294 billion
($1,000 per person)
($1,000 per person)
Global:
Global:
$360 billion
$360 billion
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–8
Top 20 Spenders in U.S Advertising, 2006 ($ million)
Table 7.1
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–9
The Magnitude of Advertising (cont’d)
The Magnitude of Advertising (cont’d)
•
Advertising-to-Sales Ratios
Advertising-to-Sales Ratios

Advertising as a percentage of sales ranges from a

Advertising as a percentage of sales ranges from a
low of 1.3 % to a high of 29.9 %
low of 1.3 % to a high of 29.9 %

Ratios typically range from 2% to 10% with an
Ratios typically range from 2% to 10% with an
average of 3.1% across most B2C and B2B
average of 3.1% across most B2C and B2B
categories
categories

Competition from larger firms forces smaller
Competition from larger firms forces smaller
companies to have higher ratios
companies to have higher ratios

Personal care products based on image have high
Personal care products based on image have high
ratios
ratios
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–10
Advertising-to-Sales Ratios for Select Product Categories
Table 7.2a
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–11

Advertising-to-Sales Ratios for Select Product Categories
Table 7.2b
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–12
Advertising-to-Sales Ratios for Select Product Categories
Table 7.2c
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–13
The Magnitude of Advertising (cont’d)
The Magnitude of Advertising (cont’d)
•
Advertising Effects Are Uncertain
Advertising Effects Are Uncertain

Advertising is not just a current expense but rather is
Advertising is not just a current expense but rather is
an investment
an investment

Advertising should not be managed as a discretionary
Advertising should not be managed as a discretionary
variable cost
variable cost

Advertising should not be the first reduction when
Advertising should not be the first reduction when

financial pressures call for cost-cutting measures.
financial pressures call for cost-cutting measures.

Consistent investment spending is the key factor
Consistent investment spending is the key factor
underlying successful advertising
underlying successful advertising

Stopping advertising can cause a brand to lose
Stopping advertising can cause a brand to lose
market momentum, reducing its equity and market
market momentum, reducing its equity and market
share
share
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–14
Advertising Functions
Advertising Functions
Influencing
Informing
Assisting Other
Company Efforts
Adding Value
Reminding and
Increasing Salience
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.

7–15
Advertising Functions
Advertising Functions
•
Informing
Informing

Making consumers aware of new brands.
Making consumers aware of new brands.

Increasing TOMA (Top of Mind Awareness)
Increasing TOMA (Top of Mind Awareness)

Teaching new uses for existing brands (called usage
Teaching new uses for existing brands (called usage
expansion advertising)
expansion advertising)
•
Influencing
Influencing

Getting prospective customers to try advertised
Getting prospective customers to try advertised
products and services:
products and services:

Creating primary demand
Creating primary demand

Building secondary demand

Building secondary demand
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–16
Advertising Functions (cont’d)
Advertising Functions (cont’d)
•
Reminding and Increasing Salience
Reminding and Increasing Salience

Enriching the memory trace for a brand so
Enriching the memory trace for a brand so
that the brand comes to mind in relevant
that the brand comes to mind in relevant
choice situations
choice situations

Increasing customers’ interest in mature
Increasing customers’ interest in mature
brands and the likelihood of choosing brands
brands and the likelihood of choosing brands
that might have otherwise not been chosen.
that might have otherwise not been chosen.

Influence brand switching by reminding
Influence brand switching by reminding
consumers that the brand is available and that
consumers that the brand is available and that
it possesses favorable attributes.

it possesses favorable attributes.
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–17
Advertising Functions: Adding Value
Advertising Functions: Adding Value
Innovating
Improving Quality
Altering Perceptions
Adding Value
Increases DCF
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–18
Advertising Functions (cont’d)
Advertising Functions (cont’d)
•
Using Advertising to Assist
Using Advertising to Assist
Other Company Efforts
Other Company Efforts

To deliver coupons and
To deliver coupons and
sweepstakes
sweepstakes

To assist sales representatives

To assist sales representatives

To pre-sell a firm’s products by
To pre-sell a firm’s products by
introducing the product and
introducing the product and
legitimizing salespeople’s claims
legitimizing salespeople’s claims

To augment the effectiveness of
To augment the effectiveness of
price deals
price deals
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–19
The Advertising Management Process
Figure 7.2
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–20
The Role of Advertising Agencies
The Role of Advertising Agencies
In-house Advertising
Operation
Purchase Services
As Needed
Use a a Full-Service

Advertising Agency
Advertising Function
Alternatives
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–21
Top-10 U.S. Advertising Agencies in Ad Revenue, 2006
Table 7.3
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–22
Advertising Function Alternatives
Advertising Function Alternatives
•
In-House Advertising Operation
In-House Advertising Operation

Necessitates employing an
Necessitates employing an
advertising staff and absorbing
advertising staff and absorbing
the operation costs
the operation costs

Unprofitable unless a company
Unprofitable unless a company
does a large amount of continual
does a large amount of continual

advertising
advertising
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–23
Advertising Function Alternatives
Advertising Function Alternatives
•
Purchase Services À la Carte
Purchase Services À la Carte

Advantages
Advantages

Use services only when they are needed
Use services only when they are needed

Availability of high-caliber creative talent
Availability of high-caliber creative talent

Potential cost efficiencies
Potential cost efficiencies

Disadvantages
Disadvantages

Lack cost accountability
Lack cost accountability


Financial instability of smaller boutiques
Financial instability of smaller boutiques
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–24
Advertising Function Alternatives
Advertising Function Alternatives
•
Full-Service Advertising Agency
Full-Service Advertising Agency

Advantages
Advantages

Access to in-depth knowledge and skills
Access to in-depth knowledge and skills

Obtaining negotiating leverage with the media
Obtaining negotiating leverage with the media

Coordinating advertising and marketing efforts
Coordinating advertising and marketing efforts

Disadvantages
Disadvantages

Some control of advertising function is lost
Some control of advertising function is lost


Larger clients are favored over small clients
Larger clients are favored over small clients

Occasionally inefficient in media buying
Occasionally inefficient in media buying
© 2010 South-Western, a part of
Cengage Learning. All rights
reserved.
7–25
Advertising Agency Organization
Advertising Agency Organization
Creative
Creative
Services
Services
•
Develop advertising copy and campaigns
•
Copywriters, production people, and creative directors
Media
Media
Services
Services
•
Selecting the best advertising media
•
Media planners develop overall media strategy
•
Media buyers procure the selected media
Research

Research
Services
Services
•
Study clients’ customers’ buying habits, purchase
preferences, and responsiveness
•
Focus groups, mall intercepts, acquisition of syndicated
research data
Account
Account
Management
Management
•
Link the agency with the client
•
Act as liaisons so that the client does not need to interact
directly with several different service departments and
specialists