© 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 7 18 Figure 7. 2 The Advertising Management Process © 2010 South-Western, a part of 7 19 The Role of Advertising Agencies Advertising Function Alternatives In-house Advertising Operation Purchase Services As Needed © 2010 South-Western, a part of Use a a Full-Service Advertising Agency 7 20 Table 7. 3 Top-10 U.S Advertising Agencies in Ad Revenue, 2006 © 2010 South-Western,... South-Western, a part of 7 25 Agency Compensation Agency Compensation Methods Commissions from Media Labor-based Fee System © 2010 South-Western, a part of Outcome- or Performance-based Programs 7 26 Ad-Investment Considerations • Are the Dollars Invested in Advertising Warranted?  Profit = Revenue – Expenses  Revenue = Price × Volume  Volume = Trial + Repeat © 2010 South-Western, a part of 7 27 Ad-Investment...Table 7. 2b Advertising-to-Sales Ratios for Select Product Categories © 2010 South-Western, a part of 7 11 Table 7. 2c Advertising-to-Sales Ratios for Select Product Categories © 2010 South-Western, a part of 7 12 The Magnitude of Advertising (cont’d) • Advertising Effects Are Uncertain  Advertising is not... Availability of high-caliber creative talent  Potential cost efficiencies  Disadvantages  Lack cost accountability  Financial instability of smaller boutiques © 2010 South-Western, a part of 7 23 Advertising Function Alternatives • Full-Service Advertising Agency  Advantages  Access to in-depth knowledge and skills  Obtaining negotiating leverage with the media  Coordinating advertising and marketing. .. favorable attributes © 2010 South-Western, a part of 7 16 Advertising Functions: Adding Value Adding Value Increases DCF Innovating Improving Quality © 2010 South-Western, a part of Altering Perceptions 7 17 Advertising Functions (cont’d) • Using Advertising to Assist Other Company Efforts  To deliver coupons and sweepstakes  To assist sales representatives  To pre-sell a firm’s products by introducing... cost-cutting measures  Consistent investment spending is the key factor underlying successful advertising  Stopping advertising can cause a brand to lose market momentum, reducing its equity and market share © 2010 South-Western, a part of 7 13 Advertising Functions Informing Reminding and Increasing Salience Influencing Adding Value © 2010 South-Western, a part of Assisting Other Company Efforts 7 14... Advertising Agencies in Ad Revenue, 2006 © 2010 South-Western, a part of 7 21 Advertising Function Alternatives • In-House Advertising Operation  Necessitates employing an advertising staff and absorbing the operation costs  Unprofitable unless a company does a large amount of continual advertising © 2010 South-Western, a part of 7 22 Advertising Function Alternatives • Purchase Services À la Carte... firm based on its advertising spending in comparison to the total level of advertising by all firms in its category © 2010 South-Western, a part of 7 31 Table 7. 4 The Effect of Advertising Elasticity on Brands Share of Market © 2010 South-Western, a part of 7 32 ... change in quantity demanded Percentage change in price  EA = Percentage change in quantity demanded Percentage change in advertising © 2010 South-Western, a part of 7 29 Advertising and Price Elasticity Combinations Situation Strategy Consumers have well-established brand preferences such as during the decline stage of a product’s life cycle or in niche markets Maintain the status quo for present... 2010 South-Western, a part of 7 30 Ad Spending, Advertising Elasticity, and Share of Market • Share of Voice  How much a firm spends on advertising relative to other brands in the category • Advertising Strength: Share of Market  The predicted market share of a firm based on its advertising spending in comparison to the total level of advertising by all firms in its category © 2010 South-Western, . 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. 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. 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