Chapter 7

Establishing Objectives and

Budgeting for the
Promotional Program

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

 The Value of Objectives

Communications

Planning and Decision Making

Measurement and Evaluation

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998

Slide 7-1
 Problems with Sales Objectives
• Problems in achieving sales could be a
function of other marketing mix variables.
• Problems in achieving sales could be due
to other macro factors.
• The effects of advertising on sales are not
always immediate and occur over an
extended time period.
• Sales objectives offer little direction to
those responsible for planning,
developing and executing the promotional
program. ©The McGraw-Hill Companies, Inc., 1998
Irwin/McGraw-Hill Slide 7-2
 Factors Influencing Sales

Technology
Competition

The economy

Advertising Sales
and promotion Product
quality

Distribution Price
Slide 7-3
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1998 Figure 7-1
 Setting Objectives Using the
Communications Effects Pyramid
 repetitive advertising in
90% Awareness newspapers, magazines, etc.
70% Knowledge  communicate features of brand
 Create favorable attitudes by
40% Liking conveying information,
25% Preference promotions, sampling, etc.
 Use sampling and cents-off
20% Trial coupons
5% Repurchase  Use continued reinforcement
advertising, fewer coupons and
©The McGraw-Hill Companies, Inc., 1998
promotions Slide 7-4
Figure 7-3
 Good Objectives Are:

• Concrete and measurable

• Specify a well-defined audience
• Establish benchmark measures
• Specify a time period
• Attainable
• Realistic
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998 Slide 7-5
 Top-Down versus Bottom-Up
Budgeting
Slide 7-6
Figure 7-12
Promotion objectives
are set
Top Management sets
the spending limits
Activities needed to achieve
objectives are planned
Promotion budget set to
stay within spending limit Costs of promotion
activities are budgeted

©The McGraw-Hill Companies, Inc., 1998

Total promotion budget is
approved by top management
 Alternative Methods for Computing
% of Sales for Entree Cologne
Method 1: Straight Percentage of Sales
1996 Total dollar sales $1,000,000
Straight @ of sales at 10% $100,000
1997 Advertising budget $100,000

Method 2: Percentage of Unit Cost

1996 Cost per bottle to $4.00
manufacturer
Unit cost allocated to 1.00
advertising
1997 Forecasted sales, 100,000
units
1997 Advertising budget $100,000
Irwin/McGraw-Hill (100,000x $1.00) Slide 7-7
©The McGraw-Hill Companies, Inc., 1998 Figure 7-13