Does It Really Matter What We Spend on Advertising

As you can imagine, marketers have probably always wondered whether their advertising dol

lars have an impact. This is particularly true now, as advertising budgets are being slashed in virtually every industry due to the downturn in the U.S. economy. Simply put, marketers want to know whether it is worth advertising their brand, and how much they should be spending if it is.

There are some out there who think that the amount spent on media has little or no impact— at least as it relates to consumers' perceptions of the brand's quality. In a study commissioned by Brandweek magazine, a Princeton-based research company concluded: "Consumer opinions pertaining to quality bear little correlation to the amount of time and money companies spend advertising their wares on Friends, FM radio or" According to Total Research Corp., none of the 10 brands most heavily advertised in the United States were recognized as among the top 100 "quality" brands—even though they accounted for over $3.5 billion in expenditures. On the other hand, the brands considered in the top 10 spent only approximately $150 million. The top three media spenders— McDonald's, Burger King, and Circuit City—didn't make the top 100 list! (List numbers 1 to 3 were Waterford Crystal, Craftsman tools, and the Discovery Channel.)

When asked why this might be the case, some consultants noted that advertising may be less effective than initially thought or that it lacked credibility in general. Others argued that advertising is too weak to establish a brand and that word of mouth or customer experience is far more valuable in establishing quality.

But not everyone is ready to dismiss advertising as ineffective. Even those that conclude that advertising is not effective in creating a quality image are not yet ready to recommend that companies stop advertising. They agree that while advertising may be weak for this objective, it is (if well designed and placed) quite effective, particularly when it comes to creating awareness and reinforcing the product's message. Further, Robert Passikoff, president of the Brand Keys consulting agency, notes that advertising has different objectives depending on the product category. He notes that "quality is less important in hamburgers than in crystal" and if the list was about fun, "Waterford would be down at the bottom."

Others agree with Passikoff, contending that stressing quality may be only one objective of advertising and that many companies do not use

Belch: Advertising and I IV. Objectives and I 7. Establishing Objectives I I © The McGraw-Hill

Promotion, Sixth Edition Budgeting for Integrated and Budgeting for the Companies, 2003

Marketing Promotional Program Communications Programs metrics to measure the ROI on advertising expenditures or—if they do—use the wrong ones. The result is that these expenditures are easy to cut, even when they should not be. As noted by Keith Woodward, VP of finance at General Mills, Inc., most managers want to see the direct returns to volume or revenue, and "you can't do that with advertising." He suggests the consideration of new forms of metrics.

Woodward notes that brand value is important but investments must consider other objectives as well. Factors such as opportunity for growth, historical performance, growth versus the competition, and previous advertising effectiveness metrics must also be taken into consideration. Once the campaign is launched, revenue, market data, and other proprietary data are considered. Woodward notes that while there is no absolute metric for advertising ROI, he feels that General Mills has some good insights and that advertising does work.

Carol Gee of Du Pont (Lycra, Cordura, and other brands) agrees. As global director of brands, Gee notes that it is difficult to track the effectiveness of advertising on the end consumer, "but if we just advertised to our direct (OEM) customers we would be a commodity overnight." While most consultants and experts agree that creating awareness and reinforcing the brand's image are both necessary and measurable, most do not agree on what other factors should be considered in computing ROI. Brand revenues, sales, and even contributions to stock values have been suggested—though there are certainly some limitations to each.

For their part, advertising agencies are also offering their opinions. In addition to awareness, factors such as valuation, ability of the campaign to differentiate the brand name, and other "response components" are suggested. Getting the ad to prompt the consumer to call a toll-free number, visit a website, or request additional information about the brand is also a valuable objective, they contend.

While the experts and consultants may disagree as to the real value of advertising—and perhaps even the real objectives—they do agree on a couple of things. First, it is hard to measure the direct impact of advertising. Second, a variety of objectives might be used in the evaluation process. And third, so far as determining the ability of advertising to demonstrate positive ROI, we aren't exactly there yet.

Sources: Kris Frieswick, "New Brand Day," CFO, November 2001, pp. 97-99; Kenneth Hein, "Can't Buy Me Love," Brandweek, June 4, 2001, pp. S20-S22.

The lead-in to this chapter reports on an issue that has perplexed marketers seemingly forever—what is the value of advertising? As you can see, there is no 100 percent agreement on what the objectives of advertising are or if it works. As this chapter will demonstrate, success can be measured by both marketing and communications objectives. This chapter will examine how the goals for the integrated marketing communications program follow the company's overall marketing strategy and how these goals determine and are determined by the promotional budget.

Unfortunately, many companies have difficulty with the most critical step in the promotional planning process—setting realistic objectives that will guide the development of the IMC program. Complex marketing situations, conflicting perspectives regarding what advertising and other promotional mix elements are expected to accomplish, and uncertainty over resources make the setting of marketing communications objectives "a job of creating order out of chaos."1 While the task of setting objectives can be complex and difficult, it must be done properly, because specific goals and objectives are the foundation on which all other promotional decisions are made. Budgeting for advertising and other promotional areas, as well as creative and media strategies and tactics, evolve from these objectives. They also provide a standard against which performance can be measured.

Setting specific objectives should be an integral part of the planning process. How-194 ever, many companies either fail to use specific marketing communications objectives or

Belch: Advertising and I IV. Objectives and I 7. Establishing Objectives I I © The McGraw-Hill

Promotion, Sixth Edition Budgeting for Integrated and Budgeting for the Companies, 2003

Marketing Promotional Program Communications Programs set ones that are inadequate for guiding the development of the promotional plan or measuring its effectiveness. Many marketers are uncertain as to what integrated marketing communications should be expected to contribute to the marketing program. The goal of their company's advertising and promotional program is simple: to generate sales. They fail to recognize the specific tasks that advertising and other promotional mix variables must perform in preparing customers to buy a particular product or service.

As we know, advertising and promotion are not the only marketing activities involved in generating sales. Moreover, it is not always possible or necessary to measure the effects of advertising in terms of sales. For example, the Toyota ad in Exhibit 7-1 is designed to promote the company's concern for the environment.

Consider the State Farm ad shown in Exhibit 7-2. What objectives (other than generating sales) might the company have for this ad? How might its effectiveness be measured?

This chapter examines the nature and purpose of objectives and the role they play in guiding the development, implementation, and evaluation of an IMC program. Attention is given to the various types of objectives appropriate for different situations. We will also examine the budget-setting process and the interdependence of objective setting and budgeting.

Perhaps one reason many companies fail to set specific objectives The Value of ObîeCtlVeS for their integrated marketing communications programs is that they don't recognize the value of doing so. Another may be disagreement as to what the specific objectives should be. Advertising and promotional objectives are needed for several reasons, including the functions they serve in communications, planning and decision making, and measurement and evaluation.

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