Advertising Decisions

1. Advertising Decisions • Introduction to ad copy design • Enhance hair conditioner • ADCAD system

2. Advertising Advertising interacts with other mix elements: • Personal selling(especially for industrial products) • Branding(advertise the brand/company?) • Price(increase or decrease price elasticity?) • Distribution(who are the targets for advertising?)

3. Sales Response to Advertising Shape: S-shape? Linear? Decreasing returns? Saturation point? Threshold? Dynamics: Growth and decline equal? Delay/carryover effects? Hysteresis? Interaction: Advertise in strong (or weak markets)?

4. Hysteresis Example 1.4 Average duringHeavy Advertising 1.2 Pretest Average 1 0.8 Sales Rate 0.6 HeavyAdvertising 0.4 0.2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 Time (4-week periods)

5. Response Shape Example Radio Equipment in Newspapers Service Recruiting in Newspapers 300 1,200 250 1,000 200 800 ResponseUnits Response Units 150 600 100 400 50 200 0 0 0 500 500 1,000 1,500 2,000 2,500 3,000 1,000 1,500 2,000 2,500 3,000 Advertising Units(a) Advertising Units(b)

6. The Timing ofAdvertising Response 6 StandardError 4 Sales Increase (%) 2 0 -2 0 1 2 3 4 5 Advertising Pulse Months

7. What Do We Know About Advertising Response? 1. Sales respond dynamically upward and downward, respectively, to increases and decreases of advertising and frequently do so at different rates. 2. Steady-state response can be concave or S-shaped and will often have positive sales at zero advertising. 3. Competitive advertising affects sales. 4. The dollar effectiveness of advertising can change over time as the result of changes in media, copy, and other factors. 5. Products sometimes respond to increased advertising with a sales increase that falls off even as advertising is held constant (Little, 1979, p. 644).

8. Advertising Budgeting in Practice • Affordable method • Percent of sales • Competitive parity method • Objective/task method • Model-based approaches • Response models • Shared experience

9. Response Model: Theoretical Idea discounted sum over markets & time of salesMax Profit = (advertising levels &´    margin – advertising competition, other mix spendinglevels) • Need to know: • Sales response for each market area, over time. • Competitive responses. • Interactive effects. • Examples: • Rao & Miller • ADBUDG

10. Rao and Miller Idea: • Use natural variations in changes in advertising versus changes in sales across markets to develop a response function. • Use response function to optimize advertising spending.

11. Relationship between Marginal Sales Created by Advertising and Average Advertising-Expenditure Levels for Brand B 37.5 District 10 30 District 9 Y District 11 District 8 22.5 District 7 District 4 District 6 District 5 Y = Change in sales dollars per 1,000 persons per year for a $6 change in advertising dollars per 1,000 persons per year 15 District 3 District 1 7.5 District 2 0 0 4.5 9 13.5 18 22.5 27 X X = Advertising dollars per 1,000 persons per year

12. Advertising Response Functionfor Brand B 37.5 District 11 30 22.5 District 7 Sales Dollarsper 1,000 Persons per Year District 10 District 5 District 1 15 District 6 District 8 District 4 District 9 7.5 District 3 District 2 0 0 9 18 27 4.5 13.5 22.5 Advertising Dollarsper 1,000 Persons per Year

13. ADBUDG Model Assumptions • If advertising is cut to zero, brand share will decrease, but there is a floor (min), on how much share will fall from its initial value by the end of the period. • If advertising is increased a great deal, say to something that could be called saturation, brand share will increase but there is a ceiling (max), on how much can be achieved by the end of one period. • There is some advertising rate that will maintain initial share. • An estimate can be made by data analysis or managerial judgement of the effect on share by the end of one period of a 20% increase in advertising over the maintenance rate.

14. Input—Calibrating Sales Response to Advertising Function Max share at endwith saturation AD Saturation advertising End sharewith +20% AD +20% advertising Share Maintenance advertising Initial Share Zero advertising Min share at end One period Time

15. Share Response vs Advertisingin 1 Period Max Share Min Maintenance +20% Advertising • Share Response = min + (max – min)(adv)c / [d + (adv)c]

16. Effective Advertising adv = [media efficiency (t)] ´ [copy effectiveness (t)] ´ [adv dollars (t)]

17. Adding Time Delays/Carryover • In the absence of advertising, share would eventually decay to some long-run minimum value (possibly zero) • The decay in one time period will be a constant fraction of the gap between current share and the long-run minimum, that is, decay is exponential Long run min = lowest share possible in the long run Persistence = fraction of the difference between “long run min” and amount of share retained with zero advertising

18. The Full Model Sharet = Long Run Minimum (LRM) + Persistence ´ (Sharet–1 – LRM) + Share Response

19. Advisor • Goal: Develop norms for levels of spending for the marketing communications mix (PS, TS and ADV). • Relate norms to product, market, environmental characteristics. • Use results to develop guidelines, auditing procedures for portfolios of products.

20. The ADVISOR Model Concept • { } • • • • • • • • • NormRange • • • • IndividualFirm Data xyz Norm • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • AdvisorModel • • MarketingSpending • • • • • • • • • • • • • • • • • • • • • • • Product xyz # Customers

21. Media Decisions Requires: 1. The objective function, which assigns a value (profit/effective exposures, etc.) to an insertion schedule. 2. The solution strategy (heuristic, optimization, etc.). 3. The constraints (budget, other). Main components of the model: 1. The vehicle exposure measure—used to measure the net reach, schedule exposure or GRPs. 2. Repetition effect—what is the relative impact of successive exposures on the same person? 3. The forgetting effect—what forgetting occurs between exposures and what is the nature of the decay? 4. The media option source effect—what is the relative impact exposure from a given source? 5. The segmentation effect—who is exposed and what is the fraction of the audience that represents target segments?

22. Media Decisions (cont’d) Approaches Linear Programming: (Charnes & Cooper 1960s) Mediac: (Little & Lodish)Includes market segments, sales potentials, diminishing marginal returns, forgetting, timing. Other: Solem (Bimm & Millen)Admod (Aaker)Urban’s Model Current Models: DSS/What-if tools(Maximize weighted sum of reach and frequency)

23. A Key Challenge in Ad Copy Decision Making • Integrating message strategy (What to say?) and the message execution (How to say?) so they work together to enhance brand/company: • If strategy overpowers the creative idea, then the message will be dull and not remembered. • If the execution overpowers the strategy, then it may be remembered, but the intended message may have no impact. • The purpose of today’s session is to explore a systematic way to develop the appropriate message strategy. • The case exercise will require you to transform the message strategy into an ad.

24. Advertising Copy Development Many ways to develop ads: • Brainstorming • Relying on experience • Using creativity templates (Use templates based on past successful ads, especially those that have won awards) • ADCAD Do copy testing to select good ads: • Attention  Persuasion • Understanding Purchase

25. Systematic Approach to Ad Development • Ads should be developed based on sound marketing and advertising strategies • Ads should be part of an integrated marketing communication program • Good ads are developed based on a knowledge of: • advertising concepts and theories • market, product, and audience characteristics • philosophies of client and ad agency

26. Typical Sequence of Steps in Ad Design • Desired Consumer • Response • Beliefs, feelings, or behavior • Creative strategy • Primary Benefit • Message/support • Executional elements Marketing Strategy • Objective • Target audience Advertising Strategy • Link to marketing strategy • Find unique brand opportunity

27. I Johnson Wax (Enhance) Map: Conditioning vs. Clean 0.60 Sassoon Agree Br. Clean Loreal Fx.inst Clean Enh.Post Tame 0.00 W.Balsam Enhance Herb.ess Condition Suave F.Fawcett –0.60 –1.00 0.00 1.00 Conditioning Enhance = Before use positioning Enh.Post = After use positioning I = ideal brand positioning

28. I Johnson Wax (Enhance) Map: Conditioning vs. Effects 0.60 Loreal Condition Fx.inst Sassoon F.Fawcett Effect onHair Agree Enhance 0.00 W.Balsam Herb.ess Br. Clean Enh.Post Tame –0.60 Suave –1.00 0.00 1.00 Conditioning Enhance = Before use positioning Enh.Post = After use positioning I = ideal brand positioning Note: The poor Enh.Post position suggests a need to revise copy.

29. ADCAD System Overview Background information (problem definition; brand, competitor, product, and audience characteristics) Knowledge Base • Published theory • Published empirical findings • Cumulative agency experience ADCAD Reasoning Process Questions, definitions, and explanations Market Assessment Information from Marketing Research and Databases Marketing Objectives Target audience selection and other marketing decisions User Advertising Objectives Communication Approaches Positioning Message Characteristics • Benefits • Message arguments • Comparisons • Ad format • Message sidedness • Educational techniques Presenter Characteristics Message Emotion • Attractiveness • Strength • Similarity • Direction • Expertise • Mood • Objectivity Recommendations and rationale “What if” sensitivity analysis

30. Advertising Objectives Past & present product usage Nature of product Past & present brand usage Product usagerate Marketing Objectives Brandmarket share Product life cycle stage Currentbrand loyalty Product purchase interval New brand uses Brand purchase motivation Brand type Product purchase motivation Package visibility and recognition at POP Decision involvement Current brand recognition Current top-of-mind awareness Time of brand decision ME Advertising 2006 30

31. Comparisons Creative Strategy Presentation Techniques Message processing motivation Decision involvement Decision involvement Product knowledge Consumer education level Brand knowledge Message Sidedness Benefit Presentation Performance evaluation ability Benefit awareness Product knowledge Brand attitude Benefit delivery Benefit uniqueness Conflicting information Benefit importance ME Advertising 2006 31

32. Marketing Objectives • Stimulate primary demand • Reinforce primary demand • Stimulate brand trial • Stimulate repeat purchase or loyalty • Increase rate of brand usage • Attract trier-rejectors

33. Advertising Objectives • Create/increase brand recognition • Create/increase top-of-mind awareness • Communicate category image/mood/lifestyle • Communicate brand characteristics • Communicate brand image/mood/lifestyle • Maintain brand recognition • Maintain top-of-mind brand awareness • Reinforce category beliefs • Reinforce brand image/mood/lifestyle • Communicate brand changes/enhancements • Communicate new brand image/mood/lifestyle • Communicate new brand uses

34. Format • Fantasy, exaggeration, or surrealism • Musical • Comedy or satire • Serious drama • Vignette • Unusual/extreme • (Announcement) • (Case-history) • (Brand production/preparation) • Demonstration of product in use or by analogy • Demonstration of results of using the product • Endorsement by celebrity/authority • Testimonial by product user • Customer interview • Slice-of-life • Problem-solution

35. Presenter Characteristics • Species • Age • Sex • Identity • Recognizability • Credibility (Expertise, Objectivity) • Attraction (Likability, Similarity)

36. Presentation Techniques Package-closeup Familiar scenario Color illustration General humor Long package display Product humor Jingle/rhyme/slogan Incongruent elements Questions Animation/cartoon/rotoscope Brand name repetition Hidden-camera Personal reference Implicit conclusion Music and/or singing Explicit conclusion Visual/verbal integration Climax presentation Visual stimuli/imagery Anti-climax presentation Quantitative arguments Strong arguments Surrogate indicators Capture consumer emotions Front-end impact Message sign-off Short copy Short headline Nouns in headline

37. Emotion in Ad • Sanguine • Phlegmatic • Melancholic • Choleric Anger then relief Convenience Relief Dullness then elation Fear then relaxation Elation Relaxation Boredom then excitement Fear then trust Excitement Trust Apprehension then flattery Moderate or high fear Flattery Disappointment the optimism Tension, discomfort, threat Optimism Surprise Annoyance then convenience Nostalgia

38. Recommended Benefits • Guarantees or warranty • Nutrition or health • User satisfaction or loyalty • New product or option • New brand uses • New solution • (Dependability) • (Self-expression) • Price/economy • Value • Quality • Challenge • Enjoyment • Safety • Status • Convenience

39. Marketing Objectives RuleExample in ADCAD Marketing Objectives (11 rules) IF product life cycle stage = introductionAND innovation type = discontinuousTHEN marketing objective = stimulate primary demand IF brand usage = noneTHEN marketing objective = stimulate brand trial IF current brand usage = someAND (brand switching = high OR product usage rate = fixed)THEN marketing objective = stimulate repeat purchase/loyalty IF current brand usage = someAND brand switching = lowAND product usage rate = variableTHEN marketing objective = increase rate of brand usage

40. Positioning Rule Examplein ADCAD Positioning (24 rules) IF ad objective = convey brand image or reinforce brand imageAND brand purchase motivation = social approvalAND brand usage visibility = highTHEN possible benefit = “status” (c.f. Holbrook & Lehmann 1980) IF ad objective = convey brand information or change brand beliefsAND perceived differences between brands = small or mediumAND perceived relative performance = inferior or parityAND relative performance = superiorAND current brand loyalty = competitor loyalTHEN message comparison = direct comparison against competition (Gorn & Weinberg 1983) IF ad objective = convey brand information or reinforce brand beliefsAND conflicting information = likely AND education = college or graduateAND product knowledge = high AND involvement = highTHEN message sidedness = two-sided (McGuire & Papageorgis 1961)

41. Message Characteristic Rule Example in ADCAD Message Characteristics (80 rules) IF ad objective = increase top-of-mind awarenessTHEN technique = jingle, rhyme, or slogan (MacLachland 1984) IF ad objective = convey brand information or reinforce brand beliefsAND market share = largeAND brand switching = highAND product type = existingTHEN technique = sign off (Stewart & Furse 1986) IF ad objective = convey brand information or change brand beliefsAND message processing motivation = lowAND message processing ability = lowTHEN ad format = problem solution (Schwerin & Newell 1981)

42. ADCAD Consultation: Output Output: Marketing and Advertising Objectives Market objective = stimulate brand trial Advertising objectives = create/increase brand recognition, communicate brand image/mood/lifestyle Output: Communication Approaches Positioning: Featured benefit = quality (user replaced Message comparison = none recommend benefit = “value”) Message sidedness = one-sidedBenefit claim = extremely positive Number of benefits = few Message Characteristics: Format = demonstration of product in use, Technique = closeup, color illustrations, long package endoresement by celebrity, vignette display, music, visual stimuli/imagery, surrogate indicators of performance, capture consumer emotions Presenter/Principal Character: Identity = celebrity Sex = female Likability = highIdentification in message = early Attraction = high Recognizability = high Message Emotion: Strength = high Direction = positiveTone = apprehension/flattery Authenticity of portrayal = high

43. Benefits of ADCAD System • Flexible representation and processing of advertising knowledge using AI methods • Separate knowledge from its processing • Verbally rich models that are closer to the way people normally tend to think -- incorporating qualitative elements relevant to a situation • Improved explanatory features • Deliver knowledge when and where decisions are made

44. Limitations of ADCAD Knowledge Base • Unclear specification of the context in which a rule is valid • No clear assessment of the degree of uncertainty associated with a knowledge element • Much of the knowledge is not empirically verified in a scientific sense

45. Initial Ad Agency Reactions Creating an advertisement is like making an omelette—easy to do but difficult to do well! Do you know any computers that can make an omelette? Computers and creatives? Forget it!! What do you think?

46. Potential Application Areasof Knowledge-Based Systems • Too much information • Systems to interpret information and generate insights for managerial actions. Example: Interpretation of log files from web servers • Too many options to consider and evaluate • Systems to reduce the number of options to a few important ones Example: Design of TV commercials • No single individual has all the relevant skills/knowledge • Systems incorporating multiple sources of knowledge and expertise. Example: New Product Development screening

47. Potential Application Areasof Knowledge-Based Systems • Routine problems with highly variable input data • Systems to automate problem solving. Examples: credit card authorization, product configuration • Shortage of skilled employees/frequent turnover • Systems that embed procedures and plans. Example: Help desk • Need “just-in-time” knowledge to solve a management problem • Network of expert systems available on demand

48. Sample Ads