There are five specific factors to consider when setting the advertising budget:^5■ Stage in the product life cycle:New products typically receive large advertising bud-
gets to build awareness and to gain consumer trial. Established brands usually
are supported with lower advertising budgets as a ratio to sales.
■ Market share and consumer base:High-market-share brands usually require less ad-
vertising expenditure as a percentage of sales to maintain their share. To build
share by increasing market size requires larger advertising expenditures. On a
cost-per-impression basis, it is less expensive to reach consumers of a widely used
brand than to reach consumers of low-share brands.
■ Competition and clutter:In a market with a large number of competitors and high
advertising spending, a brand must advertise more heavily to be heard. Even
simple clutter from advertisements not directly competitive to the brand creates
a need for heavier advertising.
■ Advertising frequency:The number of repetitions needed to put across the brand’s
message to consumers has an important impact on the advertising budget.
■ Product substitutability:Brands in a commodity class (cigarettes, beer, soft drinks)
require heavy advertising to establish a differential image. Advertising is also im-
portant when a brand can offer unique physical benefits or features.Marketing scientists have built a number of advertising-expenditure models that
take these factors into account. Vidale and Wolfe’s model called for a larger advertis-
ing budget, the higher the sales-response rate, the higher the sales-decay rate (the rate
at which customers forget the advertising and brand), and the higher the untapped
sales potential.^6 Unfortunately, this model leaves out other important factors, such as
the rate of competitive advertising and the effectiveness of the company’s ads.
John Little proposed an adaptive-control method for setting the advertising bud-
get.^7 Suppose the company has set an advertising-expenditure rate based on its most
current information. It spends this rate in all markets except in a subset of 2nmar-
kets randomly drawn. In ntest markets the company spends at a lower rate, and in
the other nit spends at a higher rate. This procedure will yield information on the
average sales created by low, medium, and high rates of advertising that can be used
to update the parameters of the sales-response function. The updated function can be
used to determine the best advertising-expenditure rate for the next period. If this ex-
periment is conducted each period, advertising expenditures will closely track opti-
mal advertising expenditures.^8CHOOSING THE ADVERTISING MESSAGE
Advertising campaigns vary in their creativity. William Bernbach observed: “The facts
are not enough.... Don’t forget that Shakespeare used some pretty hackneyed plots,
yet his message came through with great execution.” Consider the following example:■ Taco Bell In 1994, Taco Bell ranked fourth in fast-food chains and its rev-
enues were sagging. Then, in 1997, the chain introduced television spots
with a talking chihuahua. The hungry little dog, who became famous for his
Spanish-language statement, “Yo Quiero Taco Bell,” meaning “I want some
Taco Bell,” struck a chord with the chain’s 18- to 35-year-old customers and
spawned an impressive array of chihuahua merchandise such as T-shirts, mag-
nets, hats, and talking dolls—and increased revenues for Taco Bell. The little
pooch pushed Taco Bell’s sales up 4.3 percent in 1997, and the chain ended
the year with $4.5 billion in sales. Taco Bell now spends $200 million a year
on advertising and plans a long life for this popular campaign.^9Clearly, the creativity factor can be more important than the number of dollars
spent. Only after gaining attention can a commercial help to increase brand sales.
However, a warning is in order. Creative advertising may not be enough. This was the
case for Miles Inc.’s Alka-Seltzer tablets:part five
Managing and
Delivering Marketing(^580) Programs