How Should Advertising and Sales Promotion Funds Be Allocated? ROBERT M . FULMER

Should plans for a product's promotional push ennphasize the potential of poorly developed sales districts? Or, should allocations for advertising and sales promotion stress the receptive environment provided by the brand's best markets? These questions have been frequently discussed around the corporate conference table. This article asserts that the purpose of promotional spending should vary according to a brand's strength in a particular geographic area. In strong sales areas, the s i g n i f i c a n c e of the brand's own franchise should be considered. Consequently, the primary purpose of spending in those areas is to sustain the franchise already developed. In weaker districts, "developmental d o l l a r s " are necessary to build a brand's franchise to a level where it will begin to generate spontaneous trade support and the marginal return on dollars invested will be higher.

Journal of Marketing, Vol. 31 (October, 1967), pp. 8-11.

problem of allocating monies for promotional activities is TaHEcommon one, and the dilemma of emphasis is one of the principal problems involved in budgeting promotional spending. The complexity of this consideration becomes particularly significant for companies manufacturing products for mass consumption markets because of their heavy reliance on promotional activities. Self-stimulated Support and a Dichotomy of Dollars The primary purpose of this article is to stress the significance of self-stimulated sales support and to suggest that promotional spending be planned to achieve two distinct objectives: 1) to sustain and enhance the sales performance of a particular product in each of its markets, and 2) to help develop or expand the brand's strength in those areas where its performance has been unsatisfactory. While all promotional activity has the generic purpose of increasing sales, this "dichotomy of dollars" shown in Figure 1 focuses specific attention upon the dual goals of maintaining and expanding a brand's franchise in each geographic area where it is sold. The rationale of Figure 1 will be more fully developed later. For now, however, it may be noted that this chart illustrates graphically the basic theses of the article: 1) In strong sales areas, more trade support (features, displays, etc.) is generated with little or no out-of-pocket expenditures than in weaker markets. 2) "Development dollars" must be temporarily poured into weak market areas for trade support to be comparable to that which strong areas naturally receive. (Obviously, exceptions will exist to this theory. In some weak markets, insurmountable reasons exist for poor brand performance. Also implementers may frequently face problems such as the idea of increasing advertising when sales are down, and cutting back on advertising when sales are up. Few marketing men have the nerve and support from accounting or the board of directors to carry it out.) 3) Some "sustaining spending" is necessary in every market to prevent a deterioration of a brand's competitive position. Bases for Budgeting Although there has been little written discussion of the merits of allocating promotional funds according to a brand's franchise in various geographic areas, most firms seem to accept either the "press to your advantage" principle or the convenient "equal dol8

How Should Advertising and Sales Promotion Funds Be Allocated? promotional Expenditures to maintain sales, market share, and brand developnent "Sustaining spending" (Dependent upon competition) Promotional Expenditures to equalize trade support "Developmental Dollars" Self-stimulated sales support

9

more sophisticated and detailed approach to advertising budgeting, when he identified nine factors involved in making a decision of this type. His third consideration referred, at least obliquely, to the strength of a brand's franchise. It asked, "How well established is the product? (Will reminder advertising alone stimulate sales, or does the selling involve acceptance of new ideas as well as a new brand?) "2

(No ? invested by company)

H

i

g

h

M

e

d

i

u

m

£Sw

Brand Development

FIGURE

1. Brand investment.

Note: All areas should probably receive some investment in order to maintain the current sales of a particular product. In addition to this sustaining effort, the balance of available dollars should be spent in accordance with the potential for brand development among various units. This chart illustrates that even if "sustaining spending" is approximately equal in all areas, the selling stimulus will be greater in the highly developed sales areas because of the more acceptable environment. Also suggested is the probability that the potential throughout the market is not equal and, consequently, brand development in some areas will never equal the level found in other districts.

lars per case" method. The first dogma suggests that a brand should capitalize on its easy profits and then move into other areas which offer promise. This would call for a deliberate concentration of funds in areas which had proven extremely receptive to a particular product, but would ignore markets which did not quickly respond to a promotion program. The second alternative (which is more the object of this analysis) is illustrated by the practice of uniform national promotions and may frequently result in an unconscious concentration of funds in strong markets. Most theoretical approaches to budgeting have, however, stressed the determination of the total amount to be spent rather than the proper allocation of funds available. An analysis of alternative methods of allocating advertising (and other forms of promotional) expenditures was discussed as early as 1923 by Daniel Starch, who suggested: All methods may be reduced to two chief bases on which the advertising appropriations may best be determined. One method is to determine the amount in relationship to either business done or business anticipated or desired; that is, a percentage basis. The second method requires a budget plan, and setting aside of a certain total amount for publicity purposes . . . ^ This approach was, and perhaps still is, the most common means of viewing the alternatives to allocating expenditures. In 1950, Charles Mortimer suggested a slightly 1 Daniel Starch, Principles of Advertising (Chicago: A. W. Shaw Company, 1923), p. 871.

Selling Task Varies with Brand Strength No definite position was taken as to whether strong or weak sales areas were to receive the greatest promotional weight. Again, there was no indication that distinctions should be mada between sales districts. The principle was, however, alluded to in the statement: "There is no dollar and cents answer as to how much should be spent on advertising . . . It all depends on the selling task to be accomplished and the tools available, including dollars."-^ In other words, the identification of a specific objective is viewed as being essential. A logical extension of this thinking is to recognize that the immediate objective for various sales areas should depend on their current relative sales strength. As a starting point, it is necessary to identify and rank the strength of a brand in various areas as depicted in Table 1. "Brand development" (frequently defined as "the number of cases sold per one thousand inhabitants") is a concept used appropriately for this purpose. Of course, this concept is most appropriate for low-priced consumer products that are sold to the entire population. When every inhabitant of an area is not a prospect for a product, another method of measuring or comparing markets may be more appropriate. Self-stimulated Sales Support for Strong Brands Astute marketing managers have long recognized that trade support for a product will vary between units according to brand development. In other -Charles G. Mortimer, Jr., "How Much Should You Spend On Advertising?" Advertising Handbook, Roger Barton (editor), (New York: Prentice-Hall, Inc., 1950), pp. 112, 113. 3 Same reference as footnote 2. • ABOUT THE AUTHOR. Robert M. Fulmer is currently Associate Professor of Management at Florida State University. He has been actively involved in marketing management, research and consulting. He is the author of MANAGING THE PRODUCT MANAGER and several articles about the product manager system. Dr. Fulmer holds the Ph.D. from the University of California, Los Angeles, and was employed as Research Associate for the National Industrial Conference Board.

10

Journal of Marketing, October, 1967 TABLE 1

TABLE 2

SELECTED SALES UNITS RANKED BY BRAND DEVELOPMENT

TRADITIONAL METHOD OF ALLOCATING PROMOTIONAL SPENDING

Rank by Brand Development for Selected Sales Areas 1 2 3 4 5 6 7 8

Shipments 182.4 186.1 131.1 124.1 139.1 79.0 216.2 82.7

Population 3,208 4,199 3,551 3,490 4,410 2,833 8,602 3,513

Brand Development 56.9 44.3 37.1 35.6 31.5 27.9 25.1 23.5

9 10

65 8 67.7

3 750 4,235

17 5 16.0

1274.7 57000.0

41,791 190,000

30.5 30.0

Total for Selected Area National Total

words, where a brand's franchise is strong, it will receive more spontaneous featuring (linage) from the retail trade, a larger amount of shelf space (facings), fewer out-of-stocks, and more favorable pricing than in the more poorly-developed units. Some brands are so strong in certain localities that it is imperative for retailers to carry them; and when retailers feature a particular product, the leading brand naturally receives attention because its reputation and popularity are so well known. Linage tabulations frequently reveal that identical promotions (a "6^ off" factory pack, for example) will sometimes receive several times as much newspaper space in the brand's most highly-developed sales areas as will be reported where the brand's franchise is weak. Moreover, twice as many "promotional dollars" may be spent on each inhabitant of a strong area because of the larger number of promotional cases shipped. Despite the fact that uniform national promotion means that more promotion money is spent on customers in strong markets than in areas where there is not already a favorable inclination toward the product, many companies completely fail to recognize this emphasis in their planning. Table 2 shows that when promotional allocation is made on the traditional "equal dollars per case" basis, there is a general discrimination against individuals in the poorly developed units. While initially it may appear that there is a greater marginal return (in terms of promotional support) from expenditures in highlydeveloped markets, this conclusion does not recognize that a significant segment of the support is stimulated by virtue of the brand's own strong franchise.

Shipments (000)

Working Dollar Expenditure

$/ooo

Area

Number of Promotions

Population

$/Case

1 2 3 4 5 6 7 8 9 10

2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

182.4 186.1 131.6 124.1 139.1 79.0 216.2 82.7 65.8 67.7

30.1 30.2 21.7 21.6 23.1 13.0 35.9 14.4 12.4 13.5

$8.97 6.99 6.09 5.95 5.17 4.51 4.01 3.98 3.81 3.08

.17 .16 .17 .18 .17 .16 .17 .17 .19 .20

Total for Selected Areas National Total

2.0

1,274.7

215.9

5.17

.17

2.0

!57,000.0

969.0

5.10

.17

/

Dollars For Development If "development dollars" can build brand development to a level where trade support is naturally generated, the product will benefit from this "free" merchandising activity; dollars spent for promotion will be more productive; and the undue concentration of investment per individual in strong areas will be eliminated. As was previously pointed out, all areas do not possess the same potential. The possibility of future development (along with reasons for poor performance) should be analyzed before pouring development dollars into weak areas. If a brand is weak because no serious attempt at development has ever been made, because it was once exploited and then neglected, or because of poor distribution, special attempts at bringing sales and development up to what could be considered a "sustaining" level may have an excellent prognosis for success. If, however, there are problems of regional disinterest in the product (for example, antifreeze in Florida), dominance of chain-controlled brands, or extreme economic depression in the area, development emphasis might merely be pouring money down the proverbial drain. Inadequate sales coverage or an actual product inferiority are not likely to be countered by merely spending more on promotions. Once the basic problem has been corrected, attempts at development become much more feasible. Obviously the experience and judgment of competent managers are essential in evaluating the potential of weak areas. The desirability of giving temporary special attention in the hope of stimulating weak areas to a level where they can generate spontaneous trade support is also obvious.

Horv Should Advertising and Sales Promotion Funds Be Allocated? For Consumer Companies and Others This problem of allocation emphasis is most common but not peculiar to the consumer goods industry. Wedding and Lessler recognize that the principle has wider applicability by quoting from the "Greyhound Case": "According to this view, present Greyhound sales should be used as the allocating base, since they are representative of what is actually happening. They further maintained that the company should first concern itself with protecting its current position by spending the bulk of its advertising funds in those areas which currently produce the greatest Greyhound volume instead of spending against an elusive 'potential.'" " . . . (some felt) that this was a short-sighted view since it would tend to constrict and confine the company's operation. If, for example, the Philadelphia market was producing a substantial amount of present Greyhound volume, it would seem to have little opportunity for further expansion. There would be no point in spending heavy advertising monies there."^ This reference indicates the difficulty of making an "either/or" decision. Several sophisticated marketers have begun to understand the necessity of spending both to protect the franchise in "those areas which currently -produce the greatest volume" as well as to attempt to capture the "elusive potential," and, the additional necessity of identifying dollars intended to accomplish each purpose. Action Follows Awareness To illustrate, one very successful manufacturer of consumer products had always divided sales promotion dollars among the areas on an equal per case basis. As previously suggested, this meant the greater promotional weight was given to homes in the better developed units, and less weight was placed on poorly developed areas. The firm eventually recognized that "this is just the opposite from the way our promotion dollar should be spent" partially because the self-stimulated sales support received, as a function of the brand's strong franchise, further increased the imbalance of merchandising support. It was decided that some "promotion funds should be used to help equalize trade support." In practice, this would mean that more frequent promotions in lower developed areas would be conducted. While the number of paid promotions in strong markets would be gradually reduced, self-stimulated support and the greater impact of standard promotions in these areas should sustain the brand. It would be traumatic to make a sudden and dramatic N. Wedding and R. S. Lessler, Advertising Management (New York: The Ronald Press Company, 1962), p. 336.

11 TABLE 3

A PROPOSED METHOD OP ALLOCATING PROMOTIONAL SPENDING

Number Shipof Pro- ments Area motions* (000)

Working Dollar Expenditure

$/V00 Population

$/Case $.13

1 2 3 4 5 6 7 8 9 10

1.5 1.5 1.5 2.0 2.0 2.0 2.0 2.5 3.0 3.0

182.4 186.1 131.6 124.1 139.1 79.0 216.2 82.7 65.8 67.7

$24.6 25.2 18.3 21.6 23.1 13.0 35.9 19.1 18.5 19.7

?7.33 5.83 5.13 5.95 5.17 4.51 4.01 5.28 4.70 4.47

Total for Selected Areas National Total

2.0

1,274.7

219.0

5.24

.17

2.0

57,000.0

969.0

5.10

.17

.14 .14 .18 .17 .16 .17 .23 .28 .29

* One-half promotion is viewed as a promotion having approximately 50% of the normal spending weight—3^ factory pack as opposed to 6^ off.

reduction in promotional spending within an area; however, weak areas should not be de-emphasized unless their potential for further development is inferior to that of markets which are already highly developed. On the assumption that the margin between actual and potential sales was greatest in the bottom areas, the consumer company mentioned above decided to eliminate its unconscious spending emphasis in the strong markets. The change in promotional spending is illustrated in Table 3. While homes in the top areas still receive more promotional weight, the degree of imbalance has been greatly improved from the situation depicted in Table 2. Conclusion Inherent in the failure of what might be viewed as the traditional means of allocating promotional dollars is the failure to distinguish between "sustaining dollars" and "development dollars." A major advantage of the proposed plan for promotional spending is, that if done wisely, it assures maximum protection of the brand's existing business while, at the same time, providing direction for potential development. When this system is employed, the significance of self-stimulated sales support is recognized and utilized while each dollar spent has a specific goal or objective to accomplish. In one sense, the entire promotional budget is intended to stimulate sales; however, if there is a somewhat scientific system to the spending, more concrete results can be expected.