You are Given hand outs, sit in groups and

answer following :
 How body language and attire affects
your personality and communication?
 Are they important part in Business
world?
 What kind of posture do you think you
will appreciate from a person coming
to you and wanting to do business with
you? Why?

Self Answering
 What kind of posture you think is delivering
following messages :
 Not ready to change
 Close for communication
 Scared
 Comfortable
 Open to learning and positive
 Welcoming changes
 Do you think you also belong to some of these
choices? Which once? Be honest to self
 If anything, what would you like to change
about your body language?
Budgeting : Advertisements
Session 25
 …” I know half the money I spend on
advertising is washed, but can NEVER
find out which half”……(John
Wanamaker, founder of a department
stores)

 Economic Marginal Analysis
 Marginal Revenue?
 Incremental Expenditure?

 Optimal Price? MC=MR

 So for every incremental cost added to
advertisement (every Rs added) the
marginal revenue should exceed the cost(
so every ad thus produce must be
capable of generating more than the
cost: say 1:5 ratio)
 How long to add in advertising ?
 Till Incremental expenditure exceeded by
the marginal Revenue
 Sales potential /account increasing
(Industrial products)
 Very high levels of competition
 Other factor market mix components (If
sum of expenditure exceeds the
available resources, then marketing
budget for each must be scaled down)
 Sales promotion
 Personal selling
 Distribution
 Pricing

Some more conditions :
 Which phase in PLC advertising is a required
function?
 What will be the impact on Elasticity of Sales
in response to Price cuts?
 In which phase of PLC price cut is a preferred
option?
 Which is better :
 Price discounting or Advertising increase?
 How about having bigger no. of Industrial
sales accounts? what will be a better
choice :
 Personal calling or Advertising cost?
 If 1Rs of advertising lead to an equal
increase in sales volume of TWO Brands,
which brand will you allocate for more
 Gross Margin?
 whatdo you mean by Gross margin of
40%?
 What it is used for?

 Contribution Margin?
 Ifyou determine that the contribution
margin for product A is 40% , which is
lower than that of product B?
 What will you do to improve its CM?


Some problems of Marginal Concept :
 Advertising is considered as Sales
function
 Advertising is considered as the ONLY
input and IMMEDIATE Sales OUT put
 How about other factors :
 Conditionof Market?
 Change in competitive environment?
 Using Advertising as function of Sales:
 Strong creative ad vs tasteless, miss-
directed ad with same expenditure
levels
 Selection of target market for ad
 The message strategy

 Advertising as Immediate tool for Sales :
 Good for direct mail response, coupon
stimulated responses
 Most instances considerable lack in time
of advertising and the time of sales
Case 1st : % of Sales or of Gross Margin
 Ad budget based on past experience
utilizing % of Sales
 Eg : A brand has devoted 3% of
budget to advertising in past for a
given qt, so if for next year the plan
calls for say 30,00, 000/- worth of
business, the share of Ad will be
90,000 for the qtr
 What are the flaws?
 Excessive expenditure in case of large established
brands
 Keep serving loyal customers, who otherwise will
also buy the brand (in absence of ad)
 Inadequate budget for promising brand that have
potential to become competitive by advertising
 Ignore brand profitability, as only brand sales is
considered
 More logical method could be to use brand’s GM or
% contribution –to-overhead
 What happen when :
 Brand is making major positioning move?
 Becomes established and dominant?
 Brand is just introduced?
Competitive Parity and Share -of-Voice
 Need to adjust to competitor ads
 There is Norm for Industry optimal for ad budget and
any departure from optimal will lead to war
conditions
 You are Manager Marketing Pepsico for North India,
asked to forecast the budget required in your region
for advertisement for coming up season.
 Based on your understanding of Competitive Parity
and share of voice, what will be your possible
forecast ?
 Following data is given to you by your analysts :
 Market optimal in advertising expenditure for North
India is 1.5 crs for the season
 The Share of Voice (Brand’s share of total category
advertising(between all brands in the market) is
23%
 The Share of Market(SOM) is 0.9% lower than SOV for
your brands
 You VP India has indicated that Pepsico has plans to
introduce their new brand extension Pepsi Chilli in
 Is there a guarantee, that Coke will also
invest the same amount of ad cost as
what you will, for next year/season?
 Are there impacts of market conditions?
Recession?
 How about situations of individual firms?
Are they same as that of competitor?
 How about Share of Market (SOM) for the
brand? What should be higher SOV or
SOM?
 What if you have lower SOM for an
established brand?

Market Experimentation and Budgeting

A direct method of estimating sales

response to advertising
 Ad expenditure are deliberately and
systematically varied across area and
 Sales changes are monitored
 1960’s Budweiser conducted field exp
and varied ad expenditure from -100
(no advertising) to 0 (Advertising
unchanged) to +200%
Advertising and Sales, Budweiser beer
Results and interpretations
 “lessadvertising is better”? When ?
 What types of ads will or can probably
show this impact?
 Think about ONE of the Surf Excel Ad:
which strategy will be better?
 Tohave frequent exposure of it or to have
fewer exposure?
 What will/can increase the sales?
 Whatis the impact of Media mix on such
experiments?
 Like seasonal efforts/plans
 Mix of products
 Availability of product
 Exploring new customers not reached
previously
 Analyzing and restating or re-grouping
target segments
 Is it good to repeat what customer already
know about your brand or better to have
something novel?
 How about tailoring ads for local market
Split-Cable testing
 Ad weight: Increasing Ad budget with
simultaneous increase in changes in
copy or brand strategy or a new target
segment with a changed media plan
Other Marketing Mix
 Ad and price levels:
 Heavy ad weight + base price
 Heavy ad weight + 10p+ Base price
 Heavy ad weight +20p+ base price
 Which one should be more effective and
efficient?
 Measuring other variables along with
Advertising variable is very important
 These variables are called as Covariates
 The sales effects of covariates can be further
use to vary the ad weight
Problems with Market Experimentation
 Direct cost of setting up exp, collecting and
analyzing
 Management decisions are delayed
 Timelines is a problem for research for getting near
perfection results
 Less likelihood that situations wil change?
 Security cost for new products
 Imbalance advertising in some areas, in some below
optimal and the cost will be ……..?
 Controlled market experimentation is problem
 Companies’ sales force will work extra hard to get
the results, impacting the actual findings
 Retailers can run out of stock due to offers etc…
negative impact
 How about those areas where the testing has been
at optimal or below optimal levels?
 Imbalance in the competitors market, “jago
competitors” there counter action will impact the
 Current methods generally used in Market
 1.  The Percent of Sales Method: The advertising campaign
budget is a constant percentage of desired sales. A car
manufacturer may spend less than 1% of sales, while a small
retailer may budget 3 -7% of sales. A jewelry store may budget 8
-12% of sales, and other companies may budget 20% or more.
  This method works as long as the advertising campaign budget is
set as a percentage of desired sales. If the budget is set to actual
sales, and sales drop, you do not want to cut your advertising
campaign budget, or you will get caught in a downward spiral.
 2. The Task Objective Method: How much money do you need to
spend to reach the specific goals you have outlined for the
advertising campaign? This is especially effective when you are
starting out, or if you are trying to grow rapidly. Some advertising
campaign strategies call for heavy spending upfront in order to
win long-term customers.
 3.  The Historical Method: How much did you spend to reach your
sales goals in previous years or periods? You will find that by
tracking your ads, you will know in advance what you need to do
to accomplish your goals.  

 4. Share of Market - Share of Voice: This method links
market share to advertising expenditure. A company
with a 20% market share would spend slightly more than
20% of the total advertising dollars spent in the market
for that product or service. For new companies,
expenditures would be 1.5 times the desired market
share until that position is attained. [So if you want 20%
market share, you spend 30% of total advertising dollars
in that market until you get it].
 5. Competitive Parity: With competitive parity you spend
in equal amounts to your competitors as a percentage of
market share. This is a self-defense method of budgeting
marketing and advertising expenditures.
 6.  The Combination Method:  The best advertising
campaign budget you can set will be based on some
combination of all of the previous models. You want to
maintain a minimum level of advertising, fulfill specific
goals, maintain your market share, keep up with your
competitors, and compare everything to last year.