CORPORATE BUDGETING

REVIEW ARTICLE

“Advertising vs sales promotion: a brand management perspective”

George S. Low and Jakki J. Mohr

Lecture: M. Yasser Iqbal Daulay, S.E., M.B.A

Group 2:

1. Iqbal AS Putra .L C1B017088

2. Dien Lara Shinta C1B017008
3. Delvita Mercy Habibah C1B017017
4. Gustiani Nurdini C1B017093

Class: A Management
1. Review from Article
a. Title:
Ad vs. sales promotion: brand management perspective
b. Author:
George S. Low Jakki J. Mohr
c. Issue:
Amount budgeted for advertising and promotions relative to sales
d. Problem:
The issue of advertising budget and sales promotion focuses on understanding factors
related to the ratio of marketing communication to sales expenditure. In understanding
brand-level advertising and sales budgets is the fact that the perspectives of the people
who make the allocation decisions ± brand managers "have largely been abandoned
before”.
e. Reseach gap:
Brand managers perception of relevant antecedents and the results of decisions on the
allocation of advertising budgets and sales promotions.
f. Purpose:
To understand how bound rationality can contribute to an increase in understanding of
the ongoing emphasis on sales promotion in marketing communication budget
allocations in the face of concerns about harmful effects.
2. Highlight Theory:
 The power of promotion addiction is such that producers must devote a greater
proportion of their marketing budget to this "short-term improvement" and an
increasingly smaller proportion to the long-term health of their brand (Kahn and
McAlister, 1997, p. 20).
 Research showing evidence of the risk of high sales promotion spending begins to
emerge (eg, Mela et al., 1997; Papatla and Krishnamurthi, 1996), when managers in
many food product companies try to reduce their massive sales promotion budget.
Procter & Gamble led by dramatically cutting trade promotion spending and adopting a
low-price strategy every day (Reitman, 1992). P&G and other companies are now
trying to wean consumers from coupons (Narisetti, 1997; Schrage, 1996).
 Apart from these and other, less publicized efforts to cut billions spent on sales
promotions each year, producers continue to allocate nearly 73 percent of their
 marketing communication budget for these short-term activities (Tenser, 1996). AIR
CONDITIONING. Nielsen estimates that trade promotion spending increased to 38
percent of total advertising spending and sales promotion in 1993, compared to 30
percent in 1991 (Mathews, 1996).
 Mantrala et al. (1992, p. 173) suggest that sales and profits are more sensitive to the
way the budget is allocated than the overall level; they commented that 'further
behavioral research on how marketing organizations approach allocation decisions as
opposed to investment level decisions is needed'.
 Efforts will be better spent looking for other variables [besides market share and market
growth rates] that can do a better job of explaining advertising and promotion / sales
ratios (Ailawadi et al., 1994, p. 97).
 Stewart (1996) called for the inclusion of more decision-making variables such as the
product life cycle stage. Stewart further suggested that PIMS and company-level
Compustat data and SBUs used in previous studies led to potentially misleading
conclusions - the right unit of analysis must be the brand.
 March and Simon (1938), who argue that decision makers will not always look for the
best solution, but will look for it until a reasonable solution is found.
 This descriptive and bound rationality approach recognizes that managers use their own
biased judgments to make decisions, and are influenced by the realities of
organizational life (Mintzberg, 1978).
 (Farris, 1977) found that advertising expenditure was positively related to the
recognition and growth stages of the product life cycle, and negatively related to the
maturity stage.
 During the mature phase of the product life cycle, intense competition can also cause
managers to divert funds from advertising and into promotion when they try to take
market share away from competitors (Sethuraman and Tellis, 1991).
 Aaker (1996) states:
A corporate brand that is applied to many products also provides economies of scale
and scope in creating visibility and awareness, because the costs involved are spread
across various products and categories. Furthermore, the name is exposed wherever this
product is advertised or sold. Therefore, many products translate directly into more
exposure for brand names.
 Short-term perspective is defined as the extent to which management in the
respondent's company emphasizes short-term goals and objectives (one year or less),
and encourages short-term results (Burke, 1984).
 Advertising can be seen as a strategy that is relatively high risk / higher than sales
promotions that have an element of certainty to them and whose results are more
measurable using scanner data (Zenor et al., 1998).
 (Quelch, Farris and Olver, 1987) show that 90 percent of product managers prefer to
spend less time on short-term promotions and more time on franchise development
advertising, but top-ranking managers are those who spend more time on promotions,
showing that senior management values short-term orientation.
 retailers are forced to push back producers to maintain their own narrow margins
"(DeVincentis and Kotcher, 1993).
 Murry and Heide (1998), in their study of retail participation in promotional programs,
found that financial incentives are more important for retailers than other factors such
as company or personal relationships in encouraging participation in sales promotions.
 Retailers use their growing size and the power of information generated through
scanning technology to influence producers, persuading them to divert more of their
communication budgets to sales promotions (Quelch, 1983).
 Simon (1987) proposes that experienced managers make decisions by relying more on
their judgment or intuition, while inexperienced managers rely more on careful
analysis.
 Abraham and Lodish (1990) conclude that advertising has a greater impact on profits
than consumer promotion or trade.
 Jones (1990, p. 148) which determines that ‘‘ producers who promote a lot deliberately
exchange profits with volume; in other words, make a small profit from more sales. '
 The most consistent finding is that consumer promotion increases unit sales and market
share of the brand being promoted (Gupta, 1988).
 Quelch (1983) suggests that the relationship between the use of trade promotion and
market share is so fundamental that the success of trade promotion must be measured
by the increase in share generated
 Recent research consistently concludes that excessive use of trade promotions
decreases brand loyalty, increases price sensitivity, and reduces initial sales for a brand
(Mela et al., 1997; 1998; Papatla and Krishnamurthi, 1996).
  An assessment of non-response bias shows there is no significant difference between
initial and final respondents on several key variables, including company size, current
market share, and years of experience (Armstrong and Overton, 1977).
3. Methodology
a. The method (Number of Samples and Population)
 The method in this case uses a quantitative method with survey methods selected to
isolate brand-level budget allocations, to measure organizational and decision-
making variables, and to accurately represent the brand manager's perspective
determined by the theory of limited rationality. And, consistent with the theoretical
approach adopted in this study, we want to utilize the perceptions of brand managers
to understand this important allocation decision based on the position that their
decisions are very rational.
 For the initial sample frame a total of 608 product / brand managers or product /
brand manager groups. Given the small number of brand managers we could
identify, we did not randomly select a subset of this sampling framework, but
included them all in our study. Then, from the 608 questionnaires sent, 120 were
returned as undeliverable to the recipient, reducing the original sample to 488. Of
these, 163 completed, can be used surveys returned, with a response rate of 33.8
percent.
 To meet the requirements of our respondents, we ask them to report their level of
responsibility for making budget allocations for advertising and sales promotions for
the brands they choose (brands that have the highest level of responsibility and
familiarity). On a seven-point scale (anchored with 1 = none; 7 = full responsibility),
the average is 5.5 (standard deviation = 1.1). n addition, 93.9 percent of respondents
hold positions as brand or product managers or higher (including category or product
managers and vice president of marketing), and report an average of 13 years of
career experience.
b. The tool or instrument used in this study is to use a questionnaire aimed at product /
brand managers and product managers / group groups or categories of packaged goods
companies (consumer goods manufacturers who usually distribute products through
grocery stores and large traders) in the US.
c. Data Processing Results
Purification scale
 Multi-item scales were assessed for reliability and validity using confirmatory factor
analysis (LISREL VII) and standard reliability analysis. Overall confirmatory factor
analysis (each loading multi-item scale on separate latent constructions) is acceptable,
with GFI 0.87, AGFI 0.77, chi-square 113.37 with 32 degrees freedom. The alpha
coefficient for the short-term perspective is 0.89, for consumer attitude perception,
0.70, and for brand equity perception, 0.78. Means, standard deviations, alpha
coefficients, and correlations appear in Table I.
d. Interpretation results
An interesting dependent variable in our antecedent hypothesis (Hl to H7) is the
percentage of advertising allocation, divided by the total percentage of allocation for
consumer and trade promotion. Respondents were asked to report a planned percentage
of their brand marketing communication budget allocated for these tools for the coming
year. In this way, we seek to identify the relationship between the characteristics of
current products, markets, organizations and decision makers, and future budget
allocation plans - basically, capturing a mix of variables considered by brand managers
in formulating their brands. plans for the coming year and variables that can influence
their decisions.
The relationship hypothesized in Hl to H7 was tested using multiple regression with
planned advertising and sales promotion ratios as the dependent variable (as defined
above), and seven product / market and organizational / decision making steps were
included as independent variables. Adjustable R2 = 0.13 (p <0.01, F = 4.99, df = 7,
137). Regression results appear in Table II, and a summary of hypotheses and results
appear in Table III.
4. Conclusion from Article
Categories for brand types are coded using 1 for family brands, 2 for single product
brands, 3 for a group of single product brands, and 4 for `` other ''. The first three
categories make sense to code linearly, because each type of brand increases in uniqueness
and complexity. We determined that the coding of "other" cases as number 4 was
appropriate after looking closely at the eight cases in this category and noted that this
exception was one step higher in the complexity and uniqueness of the type of brand.
The open questionnaire under the category asks respondents to specify the reasons
why planned expenditure may have deviated from the truth. In addition, they were asked
to list strategic changes that might affect this year's allocations. Of the 35 respondents who
had deviations from planned spending for actual competitive activities, the most cited and
 pressure from retailers to increase trade transactions (to maintain storage space and retail
support). Other reasons for deviations from planned vs. actual are delays in advertising
creative, disappointing advertising results, investment in brand building activities, entering
new geographical markets, introducing new products, oversupply of products, increasing
product costs and organizational restructuring. Of the 42 respondents who cited strategic
changes that affected planned allocations, the majority of respondents included
philosophical changes from trade and advertising activities. For companies that might
have defined various tools in a "unique or different" way or for those who feel the need to
decipher the categories used by their company, open questions under the category allow
respondents to elaborate on their categories. The information here generally supports the
differences we draw between these three tools. For example, advertising expenses include
media expenses; Consumer promotions include in-store demonstrations, vehicle coupons
such as FSI and direct mail, samples, and so on. Only four of 165 surveys showed a slight
difference. For example, two respondents said that customer promotions included point of
purchase and in-store materials (non-prices). And two respondents indicated that brand
budgets did not contain trade dollars ± one because the trade budget was set before ``
handling 'the budget for the brand, and the other because trade promotion was not
considered a marketing cost, but rather an' offset 'to revenue. We rerun the analysis
without all four case; and the results did not change.
The "other" category is provided for those whose plans include other tools, such as
direct mail. A total of 28 respondents included other items in their marketing
communication budget. However, using relative allocation (advertising / consumer + trade
promotion), we avoid bias in the predecessor hypothesis. To examine potential biases in
the analysis of results, a covariate was added to control 28 of these cases, and MANCOVA
was run again with the same results. In addition, we ran MANCOVA again without these
28 cases, and again, the results were the same.
5. Conclusion from Group
From this article it can be concluded that in the sales promotion it will receive a lot of
criticism from academics and marketers who practice and in the sales promotion there is a
continuous growth in the total amount spent on the promotion and in the proportion of
overall marketing expenditure given to the sales promotion. Ordinary brand managers
know something that others don't know or fail to connect with people like that. The
problem that lies in the budget allocation decision used on a product is limited. As we
know managers use their own judgment to make decisions and are influenced by the
reality of organizational life. Most brand managers will explain the use of their sales
promotions by saying that they will work. To understand the allocation decision between
sales promotion and advertising, the manager must understand what is meant by the brand
manager's understanding of what works.