Lecture 6 – Marketing Communication
1] Promotion - communicating information between seller and potential buyer s or others in the channel to
influence attitudes and behavior.
Goal is to tell target customers of other 3 P's
Must inform buyers: a] the availability of the brand
b] the unique benefits of the brand
c] where and how of obtaining and using the brand
2] From an economics perspective, the goal is to make the demand curve inelastic (by communicating brand
differences customers will pay for), shifting the demand curve to the right (product usage & number of customers
increase so higher demand at all prices), or a combination of the two.
Communication Goals are either:
1] Sales (Direct response promotion) which increase net contribution
2] AIDA (Attention; Interest; Desire; Action) Note: this is more commonly used than what the book has.
Despite what your book says, all promotion is eventually assessed on the net contribution of the communication
3] Communication Tools include:
4] Publicity - any unpaid form of nonpersonal presentation of ideas goods or services. Tries to communicate
without paying media costs. IT IS NOT FREE. Primary advantage of publicity is credibility. If the publicity came
from an expert review in an influential website or magazine, then the publicity is even more credible and valuable.
After the fact, one can determine the cost-effectiveness of the publicity efforts by monitoring media
coverage and comparing the publicity cost to the cost of an equivalent amount of advertising.
Value of publicity = $ value of media coverage - publicity cost
Company spends $25,000 putting together a publicity package aimed at gaining favorable product mentions and
reviews in 5 magazines. Investment is $25,000.
Before Publicity Campaign
Magazine Cost of 1 Ad Publicity Ran
A $30,000 ?
B $9,000 ?
C $10,000 ?
D $12,000 ?
E $5,000 ?
Total $68,000 ?
AFTER THE FACT, we determine that 2 magazines gave the product a positive review, 1 gave the product a neutral
review, and the other 3 ignored the product entirely. The equivalent cost for a full page ad is given.
After Publicity Campaign
Magazine Cost of 1 Ad Publicity Ran
A $30,000 No
B $9,000 Yes
C $10,000 No
D $12,000 Yes
E $5,000 Yes
Cost of publicity was $25,000. Dollar value of the media coverage in the five magazines was $9,000 + $12,000 +
$5,000 = $26,000. Value of publicity = $ value of media coverage - publicity cost
Value of publicity = $26,000 - $25,000 = $1,000.
Better Example: Suppose magazine D is very influential and the review is worth 12 ads. The positive review in E is
worth 12 ads. The neutral review in B is judged to be worth half an ad insertion.
Dollar value of weighted media coverage is:
= (D x 12 insertions) + (E x 12 insertions) + B x .5 insertions)
= ($12,000 x 12) + ($5,000 x 12) + ($9,000 x .5)
Sales promotion - promotion activities other than advertising, publicity and personal selling, that stimulate interest,
trial or purchase by the target audience. Coupons, contests, sales contests, etc...
5] Direct Response Promotion - direct communication between a seller and an individual customer using a
promotion method other than face-to-face personal selling.
Started with catalogue and direct mail marketing. Explain how it works and measuring the direct return on dollars
spent vs. mass media advertising. Especially how you can test different executions and see the $ response.
Having a measurable, direct response from specific target customers is the key.
Direct response has always been common for industrial/channels markets where there are few customers, but only
the recent developments of inexpensive computer/data base technology makes it widespread and cost effective for
mass consumer markets. It has always been around for direct response advertising (piano lessons). [Measuring the
impact of different levels of sales calls, service levels, or prices to industrial customers].
6] Advertising - any paid form of nonpersonal presentation of ideas, goods, or services by an identified sponsor.
Not as flexible as personal selling, but can reach large number of potential customers at the same time.
Specific objectives are more important for advertising than personal selling. Personal selling can be adjusted on the
spot. Ads work best when they hit the target market just before purchase or the purchase decision. If you don’t see
a short run sales jump, the ads did not work.
Advertising is most effective when a brand differentiating message is possible. A brand differentiating message is
when the brand has either performance, price, or price for performance that is seen as superior by the target market
compared to other brands. A clear brand differentiating message which is heavily advertised can shift market shares
Brand name familiarity = target market being familiar can impact cash flows (sales, market share, and premium
price). Much weaker effect than brand differentiating message. Very expensive to obtain.
Novelty (funny, celebrity endorser, emotionally engaging ads) can also work - but does not last and is a weaker
effect overall. Exception is pure status brands.
Advertising can also work to promote short term deals which can drive sales.
For a successful advertising strategy you need a budget and well defined target market. The target market should be
defined in terms of:
Specific demographic profile
Method of usage
Current attitudes and behavior patterns.
Length of the purchase cycle.
Direct comparison with competing brands on attributes (real, perceived & emotional)
7] Media Strategy – is how advertising is delivered to the target market. It is the logistics of advertising.
Media Planning Objectives
1] Can you get a good fit between the product and the audience of the media vehicle (qualitative)?
2] Reach – percentage of the target market exposed to one or more ads in a given time frame. (more is better)
3] Average Frequency – the average number of times the target audience is exposed to the ad. (Too much or too
little can be bad).
4] CPM (Cost Per Thousand) – cost per thousand members of the target audience.
Example: Suppose you have an auto parts business in a city of 1.4 million. An analysis of the demographic makeup
of your customers determines that 70% of your users are black males between the ages of 18-45.
Compare the CPM for two radio stations:
Ad Cost Total Audience Black Males 18-45
WXXX $120 200,000 90,000
WZZZ $90 110,000 75,000
CPM = Cost/target audience in thousands
CPM WXXX = 120/90 = $1.33
CPM WZZZ = 90/75 = $1.20
Note: You do not make your decision based on cost alone, total audience size, or even the size of the target audience
alone. You need to jointly consider the size of the target audience and the cost of the advertisement.
8] Promotional Budgeting:
Percentage of Sales is most common
Example: Say last year you had $15 million in sales and you set 6% of sales as your promotional budget. Your
budget next year would be $900,000. Note, this does not give the allocation to specific communication tools.
Advantage o is simplicity. But it does not account for changing conditions (recessions) or promotional goals.
Other methods are:
Meet competition (comparative parity approach).
Set the budget as a $ price per unit (effectively the same as percentage of sales)
Budget uncommitted revenues (all available funds approach)
Advertising share of voice
Marginal budget setting (spend until the marginal revenue just exceeds marginal cost). Easy with direct response
promotion (and personal selling). Otherwise difficult to do.
Task Method - base the budget on the job to be done .
To use the Task method you must first:
A] Set your goals
b] See if budget can meet goals, if not then
c] Must change goals or budget.
This is the logical (but time consuming and complicated) way of budgeting for any marketing action.
9] Personal Selling Works Better than Ads
Salespeople get more attention than ads or displays.
Salespeople can adjust to cultural and situational factors
Salespeople can ask questions.
Salespeople can adjust to customer questions.
Salespeople can take the order - now.
Salespeople can act to make sure the customer is satisfied
Big Problem – Much more expensive on a cost per contact basis.
Basic sales tasks - order getters, order takers, supporting . Most sales jobs are a mix of the three tasks.
A. Order Getters - concerned with establishing relationships with new customers and developing new business.
Successful order getters take high risk, and get the highest pay.
Order Takers - sell to regular or established customers, complete most sales transactions, and maintain
relationships with customers. Many sales are lost because nobody ever asks for the order and closes the sale. Order
takers have less risk and get the least pay.
Supporting Salespeople - help order-oriented salespeople, but they don't try to get orders themselves. They aim at
enhancing the relationship with the customer and getting sales in the long run. Provide specialized services and
10] Sales Compensation
1. Straight salary - high fixed costs, low motivation to sell, best control over activities.
2. Straight commission - low fixed costs, high motivation to sell, worst control over activities. Can pay different
commissions to give incentives for different activities (new accounts, high margin accounts, etc...)
3. Combination plan - mix of salary, commission, and bonus. Most common.
Commissions are paid when payment is collected, not when the order is placed.
Example: Company 1, 2, and 3 each have 10 salespeople. Company 1 pays their salespeople $80,000 in salary and
benefits annually. Company 2 pays their salespeople a 4% flat commission. Company 3 pays their salespeople
$30,000 in salary and a 2% commission. What is the total salesforce compensation for each company at sales levels
of $10 million, $20 million and $40 million?
Company 1: 10 salespeople x $80,000 each = $800,000
Company 2: 10 million in sales x .04 = $400,000
Company 3: (10 salespeople x $30,000) + (10 million x .02) = $500,000
Company 1: $800,000
Company 2: 20 million in sales x .04 = $800,000
Company 3: $300,000 + 20 million in sales x .02 = $700,000
Company 1: $800,000
Company 2: $1,600,000
Company 3: $1,100,000
11] Sales budget allocation.
Service is often considered to be associated with a couple of things.
1] How many times we see a customer within a time period.
2] How long we spend with a customer per visit.
3] How we allocate our time on a sales visit.
We often use the formula:
NS = (NC x FC x LC) / TA
NS = number of sales representatives
NC = number of current and potential customers we plan to visit
FC = necessary frequency of customer sales calls
LC = length of average customer call including travel time
TA = average available selling time per sales representative (less time spent on administrative duties).
A firm has 4,200 existing customers and 3,100 potential clients to be called on an average of 4 times per year for 2
hours (including travel) and available time per salesperson is1800 hours per year. The size of the salesforce would be:
([4,200 + 3,100] x 4 x 2) / 1800 = 32.4 or 32 salespeople (round to nearest whole number).
The major problem with the work load strategy is that there is no consideration of the costs and profits associated with
different levels of customer service.
This formula also forces a manager to realize the tradeoffs between different service levels. Lets take the information
above with one change - the manager decides that optimal service requires seeing accounts 5 times a year instead of 4 - but does
not have the budget to increase the number of salespeople. We now have:
([4,200 + 3,100] x 5 x 2) / 1800 = 40.56 or 41 salespeople.
But there is only a budget for 32 salespeople. Something will have to change. The manager could adjust the number of accounts
called on, the number of potential accounts visited or the length of the visit if they cannot increase their sales budget or increase
the available selling time per salesperson. The manger decides to cut the number of potential accounts called on. This would
change our number of potential accounts to:
([4,200 + y] x 5 x 2) / 1800 = 32 salespeople. We solve for y (the number of potential accounts to be called on):
Using algebra we get: 23.33 + [y x 5 x 2]/1800 = 32
8.67 = 10y/1800;
10y = 1560.6
y = 1560.6 or 1560. You can check your work by substituting back into the equation:
[4,200 + 1560] x 5 x 2 = number of salespeople. Which equals to 32. So our math is right.
Although the equation is pretty simple, a manager can use it to get a clear answer to the trade-offs necessary on
different aspects of customer service (number of times seen and length of visit), the number of clients seen (both current clients
and potential clients), the number of salespeople needed, and the benefits of increasing selling time. It can also point out the
costs of cutting selling time for other activities such as increased training, sales meetings, and other things.
Promotional spending may be 100% fixed cost (salaried salespeople or media advertising), 100% variable cost (commission
salespeople), or a mix of fixed and variable costs.