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Part Four Objectives and Budgeting for Integrated Marketing
Communications Programs
Belch: Advertising and
Promotion, Sixth Edition
IV. Objectives and
Budgeting for Integrated
Marketing
Communications Programs
7. Establishing Objectives
and Budgeting for the
Promotional Program
© The McGraw−Hill
Companies, 2003
1. Assumption that sales are a direct measure of advertising and promotions efforts.
Earlier in this chapter we discussed the fact that the advertiser needs to set communications
objectives that contribute to accomplishing overall marketing objectives but at
the same time are separate. One reason for this strategy is that it is often difficult, if
not impossible, to demonstrate the effects of advertising and promotions on sales. In
studies using sales as a direct measure, it has been almost impossible to establish the
contribution of advertising and promotion. As noted by Frank Bass, “There is no more
difficult, complex, or controversial problem in marketing than measuring the
influence of advertising on sales.” 28 In the words of David Aaker and James Carman,
“Looking for the relationship between advertising and sales is somewhat worse than
looking for a needle in a haystack.” 29 Thus, to try to show that the size of the budget
will directly affect sales of the product is misleading. A more logical approach would
be to examine the impact of various budgets on the attainment of communications
objectives.
As we saw in the discussion of communications objectives, sales are not the only
goal of the promotional effort. Awareness, interest, attitude change, and other communications
objectives are often sought, and while the bottom line may be to sell the
product, these objectives may serve as the basis on which the promotional program is
developed.
2. Assumption that sales are determined solely by advertising and promotion. This
assumption ignores the remaining elements of the marketing mix—price, product, and
distribution—which do contribute to a company’s success. Environmental factors
may also affect the promotional program, leading the marketing manager to assume
the advertising was or was not effective when some other factor may have helped or
hindered the accomplishment of the desired objectives.
Overall, you can see that while the economic approach to the budgeting process is a
logical one, the difficulties associated with determining the effects of the promotional
effort on sales and revenues limit its applicability. Marginal analysis is seldom used as
a basis for budgeting (except for direct-response advertising).
Sales Response Models You may have wondered why the sales curve in Figure
7-9 shows sales leveling off even though advertising and promotions efforts continue
to increase. The relationship between advertising and sales has been the topic of much
research and discussion designed to determine the shape of the response curve.
Almost all advertisers subscribe to one of two models of the advertising/sales
response function: the concave-downward function or the S-shaped response curve.
• The concave-downward function. After reviewing more than 100 studies of the
effects of advertising on sales, Julian Simon and Johan Arndt concluded that the
effects of advertising budgets follow the microeconomic law of diminishing returns. 30
That is, as the amount of advertising increases, its incremental value decreases. The
logic is that those with the greatest potential to buy will likely act on the first (or earliest)
exposures, while those less likely to buy are not likely to change as a result of the
advertising. For those who may be potential buyers, each additional ad will supply little
or no new information that will affect their decision. Thus, according to the
concave-downward function model, the effects of advertising quickly begin to
diminish, as shown in Figure 7-10A. Budgeting under this model suggests that fewer
advertising dollars may be needed to create the optimal influence on sales.
• The S-shaped response function. Many advertising managers assume the S-shaped
response curve (Figure 7-10B), which projects an S-shaped response function to the
budget outlay (again measured in sales). Initial outlays of the advertising budget have
little impact (as indicated by the essentially flat sales curve in range A). After a certain
budget level has been reached (the beginning of range B), advertising and
promotional efforts begin to have an effect, as additional increments of expenditures
result in increased sales. This incremental gain continues only to a point, however,
because at the beginning of range C additional expenditures begin to return little or
nothing in the way of sales. This model suggests a small advertising budget is likely to
have no impact beyond the sales that may have been generated through other means