Marketing midterm

a. The farm press, though hard hit economically, is still viable and competitive.

b. The three major publications in this category are Farm Journal, Successful Farming, and Progressive Farmer.

2) Regional Farm Magazines.

a. These tend to be general in nature and address issues of crops, livestock, and government farm policy.

b. Examples are Prairie Farmer, Oregon Farmer-Stockman, and Nebraska Farmer.

3) Vocational Farm Magazines.

1. Devoted to certain types of farming or livestock raising.

1. Examples include The Corn and Soybean Digest, The Dairyman, American Fruit Grower, and Missouri Pork Producer.

4) Many farmers receive several publications.

Chapter

9

Using Radio

Chapter Objectives

After reading this chapter you will understand:

1. The role of radio as a selective medium

1. Radio’s strength as a secondary medium

1. Radio’s ability to reach audiences at a low cost

1. Attempts to overcome radio’s lack of a visual dimension

1. Different roles of AM and FM radio

1. The rating systems used in radio

Chapter Overview

With a host of formats and numerous stations, even in the smallest towns, radio provides advertisers with options to reach very narrowly defined niche prospects. Radio is also among the most popular media with high levels of listenership throughout the day. Radio offers the opportunity for advertisers to reach some audiences, such as teenagers, working women, and light television viewers that are sometimes hard to reach with other media.

Lecture Outline

1. Introduction

A. The pros of using radio include:

1) Radio is a primary medium for targeting narrow audience segments, many of whom are not heavy users of other media.

2) Radio is a mobile medium going with listeners into the marketplace and giving advertisers proximity to the sale.

3) Radio, with its relatively low production costs and immediacy, can react quickly to changing market conditions.

4) Radio has a personal relationship with its audience unmatched by other media. This affinity with listeners carries over to the credibility it offers many of the products advertised on radio.

5) Radio, with its low cost and targeted formats, is an excellent supplemental medium for secondary building blocks to increase reach and frequency to specific target markets.

B. The cons of using radio include:

1) Without a visual component, radio often lacks the impact of other media. Also, many listeners use radio as “background” rather than paying full attention.

2) The small audiences of most radio stations require numerous buys to achieve acceptable reach and frequency.

3) Adequate audience research is not always available, especially among many small market stations.

C. From 1926 to the mid-1950s radio was the most prestigious of the national media. Several factors, however, led to a decline in popularity with advertisers.

1) After the advent of coast-to-coast television broadcasts and the advent of instant hits such as I Love Lucy and The $64,000 Question in the early 1950s, radio’s popularity as a national medium quickly declined.

D. Despite it minor position on the national scene, its appeal as a “local” medium grew, generating impressive reach and producing over $18 billion in revenues.

1) Radio demonstrates impressive reach.

2) 94 percent of adults and 93 percent of teenagers are reached by radio.

3) Radio’s targeted program formats create intimate, one-to-one relationships with prospects.

4) Radio offers creative effects at lower production costs than any other media.

*****NOTES: Use Exhibit 9.1 Here*****

2. The Contemporary Radio Industry

A. Radio is having to adapt to a new competitive environment and different economic structure.

1) Only a few years ago the FCC limited the ownership of FM and AM stations.

2) The rules changed in 1996 with the Telecommunications Act of 1996, allowing corporations or individuals to control as much as 35 percent of the national market.

3) The radio industry changed from one of numerous small groups to one of a few huge conglomerates.

1. Some conglomerates have as many as 1,200 stations.

1. Some radio stations are owned by large media companies, which also own television stations and newspapers.

4) Radio more efficiently reaches niche markets.

B. Radio and new technology.

1) Some observers think that the radio platform of the next decade will be as an Internet business, with computers and satellites rather than the radio dial.

1. Web sites have become the new business model for radio, and Internet radio listening is beginning to grow.

1. HD Radio and satellite radio also pose challenges for traditional broadcast radio.

4) Though predicting the future for radio will be difficult, trends include:

a. The size of the audience listening to radio stations over the Internet is growing rapidly; 40 percent in June 2005 said they had listened. More listeners to Internet radio are becoming habitual listeners.

1. Over 20 percent of Americans age 12 and older said they listened to radio stations online in the past month.

2. About 6 percent said they listened to radio stations over the Internet in the past week.

0. Young audiences are more likely to prefer to listen to the radio via the Internet.

*****NOTES: Use Exhibit 9.2 Here*****

3. Features and Advantages of Radio

A. Radio is an ideal medium for the segmented marketing of the twenty-first century.

1) In many respects, radio was the forerunner of localized marketing.

2) Radio can use words, voice, music, and effects to establish a one-to-one connection with prospects that uniquely grab their attention.

3) Radio uses the most powerful form of communication—the human voice.

4) Radio can generate an emotional response.

5) Production costs are a fraction of that of other broadcast media.

B. According to the Radio Marketing Bureau, radio has the following unique advantages:

1. Radio targets. Its great strength is its advertising ability to reach selective audiences.

(
*****NOTES: Use Exhibit 9.3 Here*****
)

2) Radio reaches a majority of the population several hours per day.

*****NOTES: Use Exhibits 9.4 Here*****

3) Radio advertising influences consumers closest to the time of purchase. No other medium is present like radio just prior to prospects making purchase decisions.

4) Radio reaches light users of other media. Radio fills in the gaps in newspaper and magazine coverage of prime audiences.

5) Radio works well with other media. Radio increases frequency and reach by reaching non-users or light users of other media.

1. Much of radio listening takes place on an out-of-home basis.

(
*****NOTES: Use Exhibit 9.5 Here*****
)

7) Radio delivers consistent listening patterns. Unlike other media, radio does not experience seasonal audience drop-off.

8) Radio delivers its messages at a very low CPM level.

9) Radio provides advertisers with both immediacy and flexibility. Radio can react quickly to changing market conditions.

C. The simplicity of radio can be a major advantage in making tactical marketing decisions.

1) Even the smallest marketers can afford radio’s cost.

(
*****NOTES: Use Chapter Objective #3 Here*****
)

4. Limitations and Challenges of Radio

A. Four of the major problems facing advertisers who use radio are:

1) The sheer number of stations creates a very fragmented environment, especially for those advertisers needing to reach a general audience.

2) Clutter.

1. The medium’s lack of a visual element.

4) Increased use of MP3 players and digital radio.

B. Audience fragmentation.

1) The great strength of reaching a narrowly defined audience can also be a weakness when considered as over-fragmentation.

a. It is often difficult to reach a brand’s core prospects.

b. For those products with broad appeal, audience fragmentation has made it difficult to gain effective reach and frequency without buying several radio stations or networks.

c. Radio remains about the most effective means for advertisers to target their market.

d. Reach is facilitated by the great number of radio stations, numbering 10,600 in 2005.

*****NOTES: Use Exhibit 9.6 Here*****

C. Clutter.

1) Clutter is a major concern of advertisers.

2) The great number of commercials makes it less likely that listeners will recall any particular advertising message.

3) The number of radio commercials is significantly greater than television commercials.

a. With deregulation, the amount of time devoted to commercials has steadily increased.

1. Some stations run over 30 percent advertising during prime periods.

1. Increased clutter seems to impact young audiences the most.

D. Lack of a visual element.

1) A fundamental problem for advertisers when considering radio is its lack of a visual component.

a. Lack of visualization works against brand recognition.

b. With self-service retailing and competitive brand promotions, package identification is crucial.

2) Radio uses creative techniques to substitute the ear for the eye.

a. Radio creates a mental picture for the listener with sound effects, jingles, short and choppy copy, and vivid descriptions.

b. In recent years, radio has transferred television commercials to its own medium, allowing listeners to form their own advertising images by recall of previously viewed TV commercials.

E. Increased use of MP3 players

1. 85 percent of 12- to 24-year-olds would choose their MP3 player over broadcast radio as their preferred music source.

5. Technical Aspects of Radio

A. The signal.

1) The signal in radio is comprised of the electrical impulses that are broadcast.

2) A “good” signal means that a certain station can be heard clearly within its given territory.

B. Frequency.

1) Frequency
(used as a technical term) means the number of radio waves that pass a given point in a given period of time.

2) The frequencies for AM are measured in kilohertz and FM frequencies are measured in megahertz.

C. Amplitude.

0. Describes the height of the electromagnetic waves, whose range resembles the difference between an ocean wave and a ripple in a pond.

0. Speed is measured by the frequency with which a succession of waves passes a given point per minute.

0. Two separate systems carry radio waves, based on amplitude and frequency.

1. Amplitude modulation (AM). Variations in sound waves by variation in its amplitude (constant frequency).

1. Frequency modulation (FM). Variations in sound wave by variations in its frequency, with amplitude constant.

1. The AM signal is generally inferior, but can carry farther than FM.

1. FM signal distances are limited, but tonal quality is very fine.

1. Reception quality is determined by atmospheric conditions and station power.

*****NOTES: Use Exhibit 9.7a & b Here*****

6. Selling Radio Commercial Time

A. Radio advertising dollars are concentrated at the local level.

1) Local dollars are still greater than network or spot advertising levels, in spite of the growth of the latter.

2) Buying radio time is difficult because of the number of station options and formats.

1. There are over 850 stations in Texas alone.

1. There are dozens of distinct formats, including over 700 Latin/Hispanic format stations.

3) Recent consolidations of ownership will probably change radio rate structure and the way time is bought.

a. The media buyer will have to deal with less stations and independent rep companies to make a buy.

4) Competition is still fierce for the local advertiser’s dollar.

0. Radio has to compete with other selective media such as newspapers, the Yellow Pages, and direct response.

0. Radio is competing with newer media such as the Internet and both broadcast and cable television, which see local advertising as major profit centers.

B. Network radio.

1) Network radio began its decline in 1948 with the introduction of television.

1. Average ratings for previously popular comedy shows, soap operas, and westerns dropped to less than 6 percent, with the last major dramas Suspense and Have Gun Will Travel ending in 1962.

3) The next decade saw programming change from an entertainment format to one of news and occasional short features.

4) Although network radio is still a minor source of advertising dollars, it has remained stable at $814 million of the $19.6 billion spent annually in radio.

5) Radio networks are basically program providers and a single radio station may belong to several networks at the same time. As a result, the networks depend on local ratings to garner national advertising support.

6) Radio networks, like ABC, provide a number of targeted networks and provide individual programs and news breaks that are broadcast throughout the day.

7) Radio networks do offer some of the same advantages as television networks.

1. As with television, an advertiser can arrange for one insertion (commercial) for multiple stations and pay just one invoice.

1. Radio networks provide economical reach.

1. Radio networks target special audience segments who often are light users of other media.

8) Radio has benefited from the use of satellite technology. Consider the following when matched with satellite links:

a. Stations are guaranteed quality programming based on the latest audience research for a particular format.

b. Radio networks bring celebrities to the medium that local stations could not afford.

c. Even the smallest stations can obtain national advertising dollars as part of a network.

d. The cost efficiencies of sharing programming with several hundred other affiliates keep both personnel and programming costs to a minimum.

C. Spot radio.

1) Like television, spot radio is local time bought by national advertisers, amounting to $3.5 billion per year.

1. Used to build added reach and frequency to selected target markets.

1. The opportunity exists for advertisers to act quickly in response to competitive challenges and hit narrowly segmented markets with little waste circulation

(
*****NOTES: Use Exhibit 9.8 Here*****
)

1. Spot radio serves several important functions.

1. Provides added weight in selected regions or individual markets.

1. Popular with national companies with extensive retail outlets.

1. Provides flexibility and low cost to national advertisers.

1. Purchases are made through reps just like TV.

1. The best reps serve as marketing consultants for client stations.

1. The effect of consolidation on selling relationships is yet undetermined; reorganization has become the rule.

D. AM versus FM as an advertising medium.

1. FM dominates the overall listening audience and is the clear leader in most formats.

1. AM stations tend to reach an older audience with talk, news, and specialty formats such as gospel and nostalgia.

1. Growth of FM radio audiences and advertising revenues during the last 30 years is one of the most important trends in the industry.

1. FM programming for 30 years was confined to non-commercial and classical stations with little advertising.

4) In 1975, FM independent stations lost almost $10 million combined. Just 3 years later, these same stations had profits of slightly less than $25 million. This economic turnaround in FM radio was due to the following elements:

a. In 1972, the FCC ruled that owner of both AM and FM stations in the same market had to program different formats. This ruling opened the way for FM as a separate medium.

b. There is better sound quality with FM.

1. As the medium became more popular, the cost of FM sets declined.

1. Radio audiences turned to FM for the most popular music formats.

5) The emergence of talk radio is the only thing that may have saved AM radio from economic disaster in the past 20 years.

1. HD Radio may make it possible for AM stations to see a resurgence in listenership with its promise of high-quality sound.

E. Types of programming.

1) Radio is a medium constantly searching for targeted audiences.

2) The dominant format is music.

a. Radio audiences are very loyal to a station because of the type of music, sports, or information broadcast.

3) The most popular is the “country” format with nearly 2,000 stations.

a. The popularity had its origin in rural and small market areas.

1. To advertisers, the quality of the audience is more important than size.

5) It is extremely difficult for more than one or two stations with the same format to be successful in the same market.

a. Second and third tier stations, therefore, are constantly searching for niche formats.

6) Radio is considered a quasi-mass medium because there are only a limited number of listeners at any given time; low ratings of 1 to 3 are common.

a. Although television would consider a 1 or 2 percent increase hardly worth noting, that percent for radio might make a major difference.

7. Radio Rating Services

A. For rating measurement purposes, the lack of specific programming on most radio stations makes respondent recall much more difficult than for television.

1) Further complicating rating measurement is the fact that listening diaries or telephone surveys are impractical for radio because radio audiences frequently listen out-of-home.

B. The major source of radio ratings is Arbitron Inc., which provides audience data through its Arbitron Radio division.

1) Arbitron measures radio audiences in over 280 local markets.

a. The listener diary method is used.

b. A chosen person must be over 12-years-old and be willing to report listening habits for a 7-day period. Ratings last for a 12-week period in a specific market.

c. Arbitron collects data from more than 2.6 million diaries each year.

2) In 1998, Arbitron also began to collect the Webcast audience, measuring broadcast station Web sites.

a. One in five U.S. consumers age 12 and above have tuned to an Internet broadcast of an AM/FM station they listen to.

C. Because of the local nature of radio, station ratings are much more critical to most advertisers than those for networks.

D. The primary source of radio national network ratings is done by Radio’s All- Dimension Audience Research (RADAR), also a service of Arbitron.

1) Collected through 7-day listening diaries kept by consumers.

2) Arbitron has developed a Portable People Meter (PPM).

a. The device is worn by survey participants throughout the day and listening data is automatically sent to Arbitron for analysis.

E. The overriding problem with researching ratings is the cost.

a. The overall advertising investment does not support a research expenditure comparable to television.

8. Buying Radio

A. Radio demonstrates a number of characteristics as an advertising medium.

1) Advertising inventory is perishable, and when a spot goes unsold, revenue is permanently lost.

2) Radio is normally used as a supplement to other media. Therefore, coordination with the total advertising plan is crucial for most radio sales.

3) Every radio buy is unique. Most radio is sold in packages tailored to the advertiser.

4) A fixed rate card rarely exists. Pricing is largely based on negotiation.

B. Elements to examine prior to an advertising execution include:

1) Review product characteristics and benefits and decide whether these benefits can be effectively communicated through radio.

2) Who is the target market and can they be reached effectively with radio and, if so, what formats, what dayparts?

3) Who is our competition? How are they using radio and other media? Will radio provide a unique differentiation for our product or will we be up against strong competing messages?

4) What is our basic advertising and marketing strategy and can it be effectively carried out with radio?

C. The starting point in all advertising is the clear identification of our audience, or target market.

1) This is followed closely by comparing cost alternatives for radio outlets (CPM), in terms of how well a specific station will meet our advertising objectives.

D. Because radio is often a secondary medium, we must consider how well it complements other more primary media on our advertising schedule.

1) And consider what proportion of the advertising budget should be devoted to radio.

1. Once radio’s role is determined, the task begins of selecting the best station(s) to reach our target market in an environment best matching our products image.

F. The final, difficult step is to schedule spots.

1) Deciding the length of the spots, the selection of specific dayparts, the combination of time periods, and the use of sponsorships or events.

G. Because the planning process is difficult, radio sales personnel are often used to guide efforts and to build credibility. Obviously, there are pluses and minuses to this approach.

1) The ultimate key to successful selling is identifying with the problems of the clients.

H. In 2003 an electronic invoicing (and commercial verification) system, called RadioExchange was introduced to improve the speed and accuracy of spot radio buys.

9. Using Radio Ratings

A. Radio calculates ratings and shares in the same manner as TV (see previous chapter). The audiences and programming of radio, however, are unique and mandate that ratings be used in a way much different from the way ratings are used in TV.

B. Primary differences in ratings usage in radio versus TV include:

1) Radio advertisers are interested in broad formats rather than programs or more narrowly defined TV scatter plans.

2) Radio ratings tend to measure audience accumulation over relatively long periods of time or several dayparts instead of individual programs.

3) The audiences for individual radio stations are much smaller than TV, making radio ratings less reliable.

4) Because most radio stations reach only a small segment of the market at a given time, there is a need for much higher levels of advertising frequency in order to increase reach compared to other media. Therefore, it is extremely difficult to track accurate ratings information for national radio plans that include a large number of stations.

C. Geographical patterns of radio ratings (two different geographic boundaries) to report audiences.

1) Metro survey area (MSA) includes a city or cities whose population is specified as that of the central city together with the county or counties in which it is located.

2) Total survey area (TSA) is a geographic area that encompasses the MSA and certain counties located outside the MSA, but meets certain listening criteria.

D. Definitions of the radio audience.

1) Advertisers must understand the differences in the way audience figures are considered between radio and television.

2) Radio audiences are measured in either Average Quarter Hour

AQH
audiences or the cumulative or unduplicated audience (Cume) listening to a station over several quarter hours or dayparts.

E. Average quarter-hour estimates (AQHE).

1) Average quarter-hour persons. The AQH persons are the estimated number of people listening to a station for at least 5 minutes during a 15-minute period.

2) Average quarter-hour rating. Here we calculate the AQH persons as a percentage of the population being measured.

(AQH persons/population) x 100 = AQH rating

3) Average quarter-hour share. Determines what portion of the average radio audience is listening to our station.

(AQH persons to a station/AQH persons to all stations) x 100 = AQH Share

F. Cume estimates
. Cume estimates are used to determine the number or percentages of different people who listen to a station during several quarter-hours or dayparts.

1) Cume persons. The number of different people who tuned to a radio station for at least 5 minutes.

2) Cume rating. The percentage of different people listening to a station during several quarter-hours or dayparts.

(Cume persons/population) x 100 = Cume rating

Example: a typical station’s audience.

Station XYYY – Friday 10 a.m.–3 p.m. Adults 12+

AQH persons = 20,000

Cume persons = 60,000

Metro survey area population = 500,000

Metro survey area AQH persons = 200,000

AQH rating = (20,000/500,000) x 100 = 4

Cume rating = (60,000/500,000) x 100 = 12

MSA AQH share = (20,000/200,000) x 100 = 10

Using the above example, the following can also be calculated:

1. Gross impressions (GI) = AQH persons x number of commercials

a. Six (6) commercials on XYYY would have purchased 120,000

impressions (20,000 AQH persons x 6 spots)

2. Gross rating points (GRP) = AQH rating x number of commercials

a. Six (6) commercials would deliver 24 GPRs (4 AQH rating x 6 spots)

NOTE: The media planner must be able to manipulate the various radio data to

develop a plan most suited to a particular client. The same budget and number of

spots used in different dayparts and across multiple stations can deliver vastly

different levels of cumes, reach, frequency, and demographics.

Chapter8

Using Television

Chapter Objectives

After reading this chapter you will understand:

1.

The diversified nature of the television industry

2.

The multiple roles of television as an advertising medium

3. The changing position of network television

4. Syndicated rating services and television research methodologies

5. The various segments of television viewing

Chapter Overview

Television is truly a multidimensional medium with the consolidation of ownerships, blending of technology, and the co-producing of programming. As the future penetration of digital television makes interactivity a reality, both advertisers and programmers will have to adapt to significant changes in the role of audiences with the medium. From a marketing standpoint, the television medium now exhibits wide diversity of advertising and programming opportunities made possible by a number of related broadcast and cable entities. From local cable programming to nationally broadcast events such as the Super Bowl, each segment of the television industry has special characteristics which are the subject of this chapter.

Lecture Outline

1. Introduction

A. An overview of the television industry sets forth advantages and caveats for marketers:

1) Pros:

a. Television reaches 99 percent of all U.S. households and is particularly popular with market segments that are primary markets for advertisers.

b. Television’s combination of color, sound, and motion offers creative flexibility for virtually any product message.

c. Despite recent audience declines, television remains extremely efficient for large advertisers wishing to reach a mass audience. Cable outlets and local broadcast stations add a local or regional component to national television schedules.

d. Government-mandated moves to digital television will open opportunities for advertising and programming by early 2009.

2) Cons:

a. The television message is perishable and easily forgotten without expensive repetition.

b. The television audience is fragmented and skewed toward lower-income consumers. Daily viewing time declines significantly as income increases.

c. Shorter spots, some as short as 15 seconds, have contributed to confusing commercial clutter.

d. With remote control use, channel surfing by viewers, and the VCR and DVR (digital video recorder), the amount of time spent viewing commercials by the average television user has greatly reduced.

B. Television had humble beginnings.

1) First thought of by Philo Farnsworth in the 1920s in Idaho, the idea was for an all-electronic system.

2) In 2008, the medium will mark its 60th anniversary.

a. The medium continues to exhibit dramatic change and innovation.

b. By February 2009, the government has mandated that the medium must introduce digital technology, bringing even more innovations in both advertising and programming.

c. Television has long been the most influential medium, even with those who do not watch it.

3) Quantitative dimension: approximately 99 percent of households have at least one television set.

a. Americans spend twice as much time with TV than with radio and 10 times more time than with newspapers; the average household viewing is more than 8 hours daily.

4) Qualitative dimension: television is definitely the medium for news, entertainment, and advertising.

a. According to a TVB (Television Bureau of Advertising) survey, television is the primary source of news by over 70 percent of watchers, with newspapers second at 12 percent.

b. Television’s positive credibility carries over to television advertising, rating highly in as an authoritative, exciting, influential, and persuasive medium.

5) The complexion of television has changed over the years, moving from a mass medium to a niche medium.

a. The trend began with the VCR and moved toward more interactivity with the Internet becoming a major catalyst for two-way television communication.

6) Television must continue to move toward more interactivity to combat the appeal of the Internet and to be successful in the future.

2. Television As An Advertising Medium

A. Introductory comments.

1. The purpose of television as an advertising medium is to function as an audience delivery system.

a. The real product of television is not programming and personalities, but in the manufacture, collection, and distribution of viewers to advertisers.

1. The first television commercial was aired in the summer of 1941 following a Federal Communications Commission (FCC) approval of 10 commercial television licenses.

3) Program options are growing at a high rate through not only network affiliate stations, but also independent stations and cable television outlets.

4) Cable networks growth.

a. By the 1980s, cable television had greatly expanded the number of stations, which viewers could receive.

b. By the 1990s, cable networks had evolved and began to compete with broadcast networks for advertising by the development of original programming, making available 50-plus channels.

c. Cable network programming began producing highly-acclaimed programs, which competed for prime-time audiences.

d. The result was television fragmentation, with both advertisers and audiences being drawn to this new programming.

5) Today’s television audience is fragmented over dozens of channels and thousands of other new media choices, including video games, CD-ROMs, and the Internet.

B. With digital capabilities, networks can deliver a number of services to a household over the same conduit.

1) Programming options will be greater in number and advertising can be tailored to individual buying preferences of individuals on an interactive basis.

2) The traditional relationships between the television industry and its advertisers will change.

3) Even with technological changes ahead, television remains a primary medium for advertisers.

4) Creative flexibility is offered.

5) Television encompasses all of the senses, using sight, sound, and motion, 24-hours a day.

1. It can reach all lifestyles.

7) A large number of advertising formats available.

C. Limitations of television include:

1) Cost—television is a very expensive medium. Cost is high in network television advertising, local and cable advertising, and production costs.

a. On a CPM basis, however, television is less costly than print media, although fragmentation and increased options for audiences will increase the CPM.

b. It is critical to not only consider the cost of television production but also the cost associated with more creative commercials.

2) Clutter—refers to any nonprogram material carried during or between shows.

a. Commercials represent 80 percent of the clutter; the balance being public service and program announcements.

b. The commercials time has grown (15 minutes per hour) and the length is shorter, going from primarily 30-second spots in 1980 to 15 second or less by 2005; thereby increasing the audience perception of advertising clutter.

c. To combat this problem and break through the commercial clutter, some television networks have experimented with reducing the number of commercials and advertisers, allowing some advertisers to buy all the commercial time within a particular program.

3. The Rating-Point System

A. The basic measure of television is the rating point
.

1) The rating point (TV) is the percentage of a population (either TV households or a specific group such as women 18–49 years of age) in a market a television station reaches with a program.

2) Basic calculation:

a. Rating = program audience/total TV households.

b. The rating, expressed as a percentage of some population (usually TV households), gives the advertiser a measure of coverage based on the potential of the market.

1. When ratings are expressed as percentages of individuals, the same formula is used, but the population is some target segment rather than households.

1. A household rating of 12 for a program means that 12 percent of all households in a particular area tuned their sets in to that station.

1. Prime-time network programs usually achieve a rating of between 6 and 16, with the average being less than 9.

B. Gross rating points (GRP), calculated by multiplying the insertions by the ratings, are where the weight of a schedule is measured in terms of the total ratings for all commercial spots bought.

(
*****NOTES: Use Exhibit 8.2 Here*****
)

1) Advertisers also use GRPs as the basis for examining the relationship between reach and frequency. Formulas are:

R x F = GRP or

GRP = F and GRP = R where R = reach and F = frequency

R

F

2) To use these relationships, you must know (or estimate) the unduplicated audience. When GRP is divided by reach (R) or frequency (F); we can estimate the percentage of the target market reached and the number of times each audience member was reached, respectively.

*****NOTES: Use Exhibit 8.2 Here; See page 263 for calculations *****

C. One of the principal merits of the GRP system is that it provides a common base that proportionately accommodates markets of all sizes. However, GRPs cannot be compared from one market to another unless the markets are of identical size.

1) The advertiser has to decide how much weight (how many GRPs) to place in their markets and for how long a period.

2) The answer to this may be whether the goal is reach or frequency.

3) To estimate the cost of television advertising on several shows, advertisers use the cost per rating point (CPP)
calculation.

The formula is:

CPP = cost of schedule or commercial

GRPs

*****NOTES: Use Exhibit 8.2 and 8.3 Here; See p. 264 for calculations on CPP*****

D. Limitations:

1. Should not be used to compare markets of different size (intermarket size comparison).

1. It does not tell us the number of prospects being reached by a program.

1. GRP, by itself, cannot tell us how effectively a broadcast schedule is performing.

1.

4. Share of Audience

1. Share of audience (or simply, share) is the percentage of households using TV that are watching a particular program.

1) Share of audience is often used to determine the success of a show. It is used by advertisers to determine how a show is doing against its direct competition.

2) The rating calculates the percentage of total TV households that are tuned to the program.

Formula: Rating = show viewers x 100 = rating

total TV households

3) The share calculates the percentage of households using television (HUT) that are tuned to the program.

Adjusted formula: Share =
show viewers x 100 = share

HUT

(NOTE: HUT indicates the actual number of viewers.)

5. The Many Faces of Television

A. Each form of television (i.e., network television, cable, syndicated programs, etc.) has its own advertising pricing structure, programming, target audience, and rating expectations.

1) The use of television as a personal medium is further demonstrated by the number of multi-set households.

2) More diverse advertising opportunities will occur through technological advances and as the wireless world advances.

3) The process of television media planning and buying is extremely complex.

*****NOTES: Use Exhibit 8.4 Here*****

1. Network Television

A. Erosion of audiences for top-rated network shows continues.

1) This probably occurs because of the proliferation of television options.

2) The Big Four (ABC, CBS, FOX, and NBC) have surprisingly sustained share levels in spite of the proliferation of television options.

*****NOTES: Use Exhibit 8.5 Here*****

B. Clearance and affiliate compensation.

1) Networks are comprised of local stations that contract to carry network programming.

2) The four major networks have affiliates in most television markets.

a. The newest networks are WB and UPN. They have affiliation agreements with smaller stations in most markets.

3) Networks sell national advertising on the basis of station clearance
.

a. Network clearance is expressed as the percentage of the network’s station lineup that has agreed to clear their schedules for network programming.

4) Another primary factor in the relationship between networks and affiliates is station compensation
.

a. Compensation is a system whereby networks share advertising revenues with their affiliates in return for using local station time for their programs.

b. As the cost of network programming has increased and the audience levels have fallen, the relationship between networks and stations over compensation has become contentious.

1. Networks are demanding that local affiliates share in the cost of this programming because the value of a station’s local advertising spots is a result of the audience gained through popular network programming.

2. Many local stations are now reviewing the value of the cost to continue affiliation with national networks.

C. Network ownership.

1) Most networks are relatively small parts of larger conglomerates.

2) They are usually not among the most profitable units of the conglomerates.

3) Mergers and acquisitions raise troubling questions regarding the free flow of news, restriction of competition, the impact on rates, and internal conflict of interest among units.

4) Congress is examining ownership questions that might lead to control that is excessive.

D. Network commercial pricing and declining audience shares.

1) Television is in the business of delivering prospects to advertisers.

2) High costs are affecting the commercial pricing structure.

3) The average cost of a 30-second spot is currently $150,000 on the four major networks.

a. Some spots cost over $550,000.

4) Network advertising revenues are growing significantly, but media buyers complain that these increases are more a result of more commercials (clutter) and unjustified rated increases that have resulted in higher CPMs.

E. Block programming.

1) The television audience is fickle.

2) Research has consistently shown that shows do not stand on their own, but are greatly influenced by:

a. Preceding shows called the lead-in.

b. The total daypart schedule, called a block.

c. Strong lead-ins are very important and are closely watched by local stations.

d. Strong lead-ins responsible for escalating prices paid for by off-network syndicated programs.

e. Network programmers are very aware of the ebb and flow of audiences.

f. Pricing of new network shows is dependent on their placement in the network schedule.

g. A new show sandwiched between older but successful shows is in a hammock position.

h. Once a new show is on the air, it is judged by how it keeps the audience from its lead-in and sustains the strength of the block.

F. Network television advertising criteria. Three factors considered to determine buying decisions:

1. Demos—demographics of television audiences becoming more important than just the size of the audience.

2) CPMs—CPM levels; other advertisers driven by cost considerations, evaluating cost efficiencies and CPM levels on an equal basis with audience demographics.

3) Demand—demand for certain programs. Not only a function of demographics and CPM, but also of qualitative factors created by a special event, personalities, or publicized final episodes.

4) Other factors:

a. Avails (available times)—broadcast media do not have the advantage of flexible advertising inventory.

1. Networks must ration prime commercial spots among major advertisers, combining top-rated avails with less popular ones.

2. Advertisers buy package plans, placing commercials across the entire schedule.

b. Up-front buys. Each May, major advertisers begin the negotiation process to buy commercials on the network prime-time lineup for the coming fall season. Most prime-time spots bought during this period. Has become complex with a number of trends:

1. Greater demand for time. A very competitive marketplace.

*****NOTES: Use Exhibit 8.6 Here*****

2. Globalization. Positioning in the context of global media plans of multinational clients.

3. Special events. Time demands brought by events like political elections and the Olympics.

c. Scatter buys
. The up-front season is followed by scatter plan buys throughout the year, usually quarterly.

1. Designed for larger advertisers that want to take advantage of changing marketing conditions or for smaller advertisers shut out of up-front buys.

2. Sell at a higher CPM because there is less inventory and smaller advertisers don’t have the leverage to negotiate better CPM levels.

G. Negotiation.

1) This is the key to network buying.

2) Declines in network rating and share levels have created a more contentious atmosphere.

3) Negotiators look for time across a number of television options to reach a particular target market.

4) Small differences can make big differences in profits and revenues with respect to rating points.

H. Make-goods.

1) Make-goods are concessions to advertisers for a failure to achieve some guaranteed rating level.

a. Usually offered on the basis of total GRPs for an advertiser’s television advertising schedule.

b. Usually take the form of future commercials making up for rating shortfalls.

2) Make-goods are now a major contention between agencies and the networks.

3) The make-goods put pressure on networks to deliver what they have promised—the audience.

7. Spot Television

A. When national advertisers buy from local stations, the practice is known as spot television or spot buys.

1) The idea is to spot coverage in certain markets rather than blanket coverage.

2) The disadvantage is that it requires a great deal of planning and paperwork because everything is bought on a one-to-one basis.

a. It is more costly on a CPM basis than network buys.

3) Spot advertising is very competitive; more than 1,000 local stations, plus several thousand cable outlets competing for spots.

4) Spot market expenditures will be relatively flat as advertisers move dollars toward other forms of local television (as in cable).

5) Most spot advertising is placed through station representatives or
reps.

a. The rep is paid a commission by the station based on the time sold; and may have 100 or more station clients.

b. Commission ranges from 5–10 percent depending upon station size.

c. Unlike a real network, stations are linked only through being clients of a particular rep; they are called nonwired networks.

d. Nonwired concept is simply a means of providing buying efficiency and convenience for spot advertisers.

6) The rep’s role in the spot market will probably change significantly as consolidation in the television industry accelerates. Some station groups are large enough to support their own national sales force.

7) The primary purposes of the spot buy are:

a. To allow network advertisers to provide additional GRPs in those markets

with the greatest sales potential.

b. To provide businesses with less than national or uneven distribution a means of avoiding waste circulation incurred by network television.

c. To allow network advertisers control for uneven network ratings on a market-by-market basis.

d. National advertisers can use spot advertising to support retailers and provide localization for special marketing circumstances.

*****NOTES: Use Exhibit 8.7 and 8.8 Here*****

B. Defining the television coverage area.

1) Television research uses three levels of signal coverage to designate station coverage of a market area.

a. Total survey area is the largest area over which a station’s coverage extends.

b. Designated market area (DMA) is a term used by A.C Nielsen Company to identify those counties in which home market stations receive a preponderance of viewers.

c. Metro rating area corresponds to the standard metropolitan area served by a station.

C. Local television advertising.

1) Television advertising is increasingly purchased by local advertisers.

2) Buying and scheduling spot and local TV time. Media buyers must be familiar with the specifics of both of these aspects.

3) The TV day. Typical daypart designations are:

a. Morning: 7:00–9:00 a.m., Monday through Friday.

b. Daytime: 9:00 a.m. – 4:30 p.m., Monday through Friday.

c. Early fringe: 4:30–7:30 p.m., Monday through Friday.

d. Prime-time access: 7:30–8:00 p.m., Monday through Saturday.

e. Prime time: 8:00–11:00 p.m., Monday through Saturday and 7:00–11:00 p.m. Sunday.

f. Late News: 11:00–11:30 p.m., Monday through Friday.

g. Late fringe: 11:30–1:00 a.m., Monday through Friday.

4) Preemption rate. A considerable portion of spot TV advertising time is sold on a preemptible (lower-rate) basis, whereby the advertiser gives the station the right to sell a time slot to another advertiser that may pay a better rate for it or that has a package deal for which that particular spot is needed. Forms include:

a. Nonpreemptible.

b. Immediately preemptible (IP).

c. Preemptible with two weeks notice.

5) Other forms:

a. Special features. News telecasts, weather reports, stock market reports, etc., are often sold at a premium price.

b. Run of schedule (ROS). Advertisers can earn a lower rate by permitting a station to run commercials at its convenience, whenever time is available, rather than in a specified position.

c. Package rates. Different periods of the day are sold as a package.

d. Product protection. Every advertiser wants competitive products as far away as possible from their time slots. Most stations will attempt at least a 5-10 minute break in between competitive commercials. The only guarantee is that they will not run them back-to-back.

e. Scheduling spot and local time.

1. Rotation of schedule refers to the placement of commercials within a schedule to get the greatest possible showing.

2. Horizontal rotation spreads spots throughout the week.

3. Vertical rotation spreads spots throughout the day or during a program.

8. Television Syndication

A. Television syndication is the sale of television programming on a station-by-station, market-by-market basis.

1) Major syndicated shows are sold on an advertiser supported or barter basis.

2) Barter syndication refers to the practice of offering shows to stations in return for a portion of the commercial time in the show, rather than selling the show for cash.

3) A majority of the commercial time on syndicated shows is packaged into national units and sold to advertisers.

4) Some spots are pre-sold on a national basis and the remaining time sold to local and spot advertisers.

5) Syndication began when producers sold their canceled network shows to stations for inexpensive “fillers” during late afternoon or other time period’s not programmed by the networks. During this time it was a minor portion of television advertising.

6) Syndication accounts for close to $4 billion in advertising revenues and major syndicated shows provide coverage comparable to the broadcast networks.

7) The key to syndication’s success is quality programming. The types include:

a. First-run—made for syndication programs.

1. Off-network syndication—reruns of former network shows.

1. Off-network shows reach more predictable demographic segments than first-run products.

8) The three-tier pricing structure includes:

a. The top-10 blockbusters (most expensive, but proven).

b. Fall short of the top 10 but have sizable, loyal audiences (medium pricing).

c. Lower tier of talk shows and less-popular reruns (low pricing).

9) The demand for syndicated shows is driven by television’s insatiable demand for all types of programming.

a. It is expected that broadcast syndication will surpass cable networks in achieving significant levels of audience reach.

b. Some stations have moved to sign long-term contracts with program producers to guarantee access to certain shows.

B. The audience for syndicated television.

1) Syndication has some of the same characteristics as cable.

2) Audiences are delivered; however, these audiences are spread over several shows.

3) Syndicators sell programs on the basis of multiple airings known as gross average audience ratings.

4) The future of syndication is very bright because local stations find it very lucrative.

a. More commercials can be sold in syndicated shows; network shows allow the station to sell 1 minute of commercial time and syndicated shows allow 6–12 minutes of commercial time.

5) Top ten syndicated television advertisers include large package-goods companies and pharmaceuticals.

(
*****NOTES: Use Exhibit 8.10 Here*****
)

6) Syndications will be a major advertising vehicle for the foreseeable future.

C. Stripping.

1) Popular shows are “stripped” across a time period for an entire week (i.e., Wheel of Fortune appears at the same time Monday through Friday).

a. This practice is cost effective and builds a consistent audience for selling commercials to potential advertisers.

9. Cable Television.

A. Cable systems began in Pennsylvania in the 1940s. The systems (then known as CATV) brought TV into rural areas.

1) By the 1970s, cable systems had spread throughout the country, moving from rural to major cities.

2) Cable systems are now a major medium with a household penetration of more than 72 percent.

3) Cable advertising has shown double-digit increases in recent years.

B. The contemporary cable television industry.

1) Audiences now have a wide choice of options from cable operators.

2) The success of cable can be traced to two related elements:

a. Brand identification based on unique, selective networks and programs that appeal to targeted demographic audience segments.

b. The investment by cable networks in first-run programming.

3) Unlike networks that reach huge audiences, cable provides advertisers with much smaller niche audiences who exhibit both common demographic characteristics and interests.

4) Favorable brand recognition attracts large national advertisers to this medium.

5) Cable networks have begun to add original programming in order to attract both viewers and advertisers; billions of dollars are being invested in original programming.

*****NOTES: Use Exhibit 8.11 Here*****

C. The future of cable advertising. Factors that make cable television an attractive medium for advertisers:

1) Ability to target audiences.

2) Low cost.

3) A strong summer season.

4) Opportunity for local and spot cable advertising.

D. New advertising options in the future for cable will be:

1) Cable network magazines that offer advertisers the opportunity to negotiate cross-media deals to potentially have more impact on their target audiences.

2) Traditional advertising spots carried on regular analog cable.

3) Targeted advertising using digital technology.

4) Interactive advertising offered through software added to cable boxes.

1. Shopping directly from the TV screen.

1. A new innovation is cut-ins on network programs for local advertisers.

c. Interconnects occur where cable systems interconnect and link themselves to distribute commercial advertising schedule simultaneously.

E. New research methods have been developed to help measure cable’s impact; Nielsen Media Research and Mediamark Research Inc. offer a number of such services.

10. Videocassette Recorders and Digital Video Recorders

A. The videocassette recorder (VCR) has become as commonplace as TVs.

1) 89 percent of American homes have a VCR and many have more than one.

2). The VCR is almost a medium in itself.

3) Time-shift viewing allows one to see a show after it has already been broadcast.

B. Recording shows has its dark side for television advertisers.

1) Half the recorded shows are never watched.

2) Commercials can be skipped.

3) Time-shifting viewers tend to be demographically different than original audience.

C. Some industry observers predict that the VCR will be replaced by digital video recordings (DVR), which offers more flexibility.

1. This technology does not require a tape and recording is quicker and easier and stores many more hours of programming than a VCR.

1. It also allows advertisers to customize commercials for individual viewers.

1. Advertisers worry, however, this that technology also makes skipping commercials very easy

1. There is also a concern that pay-per-view movies will decrease commercial viewing.

5) DVRs did not take off as quickly as predicted, due to the high cost of a unit. However, some satellite and cable television companies began offering DVRs to lure subscribers.

a. In 2006, DVR penetration of US television households was about 11 percent.

b. DVR households tend to be more upscale and more likely to be heavy users of magazines, newspapers and the Internet.

6) DVRs provide technical convergence of computers, interactive communications and multiple options for standard television. Advertisers will have to better target their commercials to audiences.
11. Brand Integration or Product Placement

0. Product placement is when a real brand or product is included in a media vehicle in exchange for goods, services, and/or money. The brand is integrated into the programming so it appears realistic to the viewer and may lead to a positive impression of the brand.

0. Advertisers have been more aggressive in seeking ways to integrate their brands into television programs.

1. Brand integration can range from having the product appear in one episode to sponsorships of entire shows.

1. New technology is making virtual product placements possible.

1. Advertisers debate the value of integration and it is not seen as something that will replace commercials.

12. Syndicated Rating Services

A. Introduction.

1) It is crucial for advertisers to have reliable data on which to make buying decisions and to determine if they are paying a fair price.

2) As television has become more fragmented, the measurement of customer delivery has become more difficult and complicated.

a. As audiences for each television outlet decrease, the magnitude of error increases as a percentage of the total viewing audience.

b. Because most advertising rates are determined by ratings, concern is increasing.

B. The Nielsen ratings.

1) The primary supplier of syndicated television ratings is Nielsen Media Research.

a. The company was founded in 1923 by A. C. Nielsen to collect radio audience information.

b. The company began television rating services in 1950 with the Nielsen Television Index (NTI).

c. Data is collected nationally from 9,000 households.

d. A People Meter is attached to the selected household’s television set to monitor what is being watched, with buttons assigned to each person living in the home.

(
*****NOTES: Use Exhibit 8.13 Here*****
)

2) A Nielsen Station Index (NSI) monitors local television watching.

a. In the 56 largest markets, set meters measure household television set usage on a continuous basis.

b. In 210 television markets, Nielsen provides diaries in which individuals record their viewing habits. These are administered during four sweep periods (sweeps) used to set the price of local commercials for the coming quarter.

3) In recent years, the rating system has come under increasing scrutiny. Areas of concern include:

a. Sweep weeks. In theory, an efficient, inexpensive means of estimating quarterly local market ratings. In fact, local market stations have sometimes used the period to artificially distort their ratings by manipulating programming.

b. Diaries. Due to 50-plus-channel reception, the diary is an antiquated tool. However, people meters are very expensive. Use of people meters would largely eliminate the current sweeps problem by providing ongoing measurements.

c. Exposure value. Estimating exposure levels for television commercials versus set usage.

1. Who is watching?

2. Who is paying attention?

3. What level of attention being given to any particular show?

4) Nielsen and Arbitron announced a joint research effort to solve audience measurement problems, using portable people meters (PPM)

a. It eliminates the nuisance of diaries and does well at measuring out-of-home audience measurements of radio.

b. Cost, however, is a major barrier.

5) It is clear that methods of measurement used in the past will not work in the fragmented landscape of the twenty-first century.

a. But how much stations, networks, and advertisers are willing to pay will be a primary issue.

C. Qualitative Ratings.

1) Another type of qualitative audience measurement seeks to offer insight into audience involvement or degree of preference for particular television shows or personalities.

2) The best known qualitative service is Marketing Evaluation, which compiles a number of popularity surveys called “Q” reports.

1. The most familiar of these are TVQ and Performer Q.

1. Example: If a TV show reveals 50 percent of the population familiar (FAM) and 30 percent rank it as their favorite (FAV), then Q = 60.

Q = FAV or 30 = 60

FAM 50

c. Because of fragmentation TVQ scores have gone down.

Chapter7

Media Strategy

Chapter Objectives

After reading this chapter you will understand:

Chapter Objectives

After reading this chapter you will understand:

1. Primary goals and objectives of advertising

2. Changing roles of advertising within the marketing communication mix

3. Value of advertising and measuring return-on-investment (ROI)

4. Various categories of advertising

5. Advertising and building brand equity

6. Advertising of ideas and non-profit organizations

Chapter Overview

Advertising has undergone dramatic changes during the last decade. Technological change and demands from clients for more accountability have altered practices of the advertising industry. Advertising’s primary role, however, continues to be to convey truthful information about products, services, or ideas to a targeted audience. Media will increasingly target market niches and individual buyers.

Lecture Outline

1. Advertising and the Changing Communication Environment

A.

In recent years, a major concern of marketers has been the convergence, or coming together of related components of the mass-communications system. These components appear in three distinctly related areas:

1) Technological convergence—the incorporation of computer technology with broadcast media and home reception.

2) Business convergence—usually referred to as consolidation, it is the dominant trend of companies merging and includes advertising agencies and media companies.

3) Content convergence—companies try to stretch their advertising or program content in new directions to help amortize sizable investments.

B. Convergence is very apparent in advertising communication. Finding a cost-efficient plan for reaching increasingly in-control and demanding consumers is the major challenge of contemporary advertising. The forces of convergence and consolidation dominate every advertising, promotion, and marketing decision.

C. Advertisers have a dual problem – an ever-expanding number of media options and the need to develop advertising messages that consumers will invite to share their time.

D. Citizen media describes the relationship between advertisers and consumers where communication users exert more control than do communication providers. Participatory media such as blogs is another step in citizen media.

E. The year 2000 marks when the communication revolution first became commercially viable.

F. Advertisers vote with their dollars, and no better evidence exists of the importance of new technology than the shift in financial support by major advertisers away from traditional media to new and, especially, interactive technology.

2. Advertising as a Communication Tool

A.
Advertising is a communication tool. Advertising objectives must be viewed from a communication perspective. The fundamental principle of good advertising is that it must be built around the overall marketing plan and execute the communication elements of a more far-reaching marketing program.

B. Advertising objectives must complement the marketing plan. The following are the primary factors in the typical marketing plan:

1) Overall goal(s) of the plan. Marketing goals are usually expressed in financial terms; such as percentage increases in sales.

2) Marketing objectives. Marketing objectives should be clearly stated and measurable.

3) Marketing strategy. Steps to achieve goals and objects are outlined, in the form of a general overview.

4)
Situational analysis. An environmental analysis including product benefits, sales and industry projections, and the competitive situation.

5)
Problems and opportunities. Major problems and opportunities facing a brand are addressed.

6)
Financial plan. An outline of expected profit or loss over a designated time frame.

7)
Research. This section outlines the data needed for marketing planning, where they can be obtained, their cost, and time frame for availability.

C.
Following the marketing plan as a blueprint, the advertising plan is drawn up to accomplish the following communication tasks:

1) Prospect identification. Identify prime company prospects, including demographic and psychographic data.

2) Consumer motivations. Analyze the underlying consumer needs, wants, and aspirations relative to the purchase of product/service categories and specific brands.

3)
Advertising execution. Develop creative advertising messages that effectively set brands apart from the competition.

4) The advertising budget and allocation. The share of the marketing program designated for advertising will be included in the marketing plan. Allocation of the advertising budget will be part of the advertising plan.

3. Advertising and Profitability

A.
The value of a particular marketing function is often expressed as return-on-investment (ROI). A number of studies indicate a strong correlation between brand awareness, market share, and profits.

Clients are increasingly demanding that media and advertising agencies measure advertising success on the basis of effective communication rather than on audience exposure.

B. While there is general agreement on the need to estimate audience involvement, there is a lack of consensus on how to define and/or measure it.

C. The demand for accountability and a focus on ROI are already becoming part of the media/advertiser relationship.

D. Despite these attempts to change the method of buying and measuring the audience of various media, we are far from a consistent model for determining audience value across the hundreds of communication vehicles currently used by advertisers. Despite some misgivings on the part of media and advertising agencies, it is the client that will ultimately prevail in the application of ROI management.

4. Integrated Marketing

A. Marketing consists of four primary elements: product, price distribution, and communication. These are the marketing mix. The communication component is further divided into four primary categories:

1) Personal selling. Personal communication is the most effective means of persuading someone. It is also the most expensive and thus impractical at the initial stages of mass selling. As a primary technique, it is used most often in business-to-business marketing. Personal selling techniques are becoming important factors in many selling tactics across a number of platforms such as direct response and the Internet.

2) Sales promotion. Extra incentives are used periodically to generate sales through pricing discounts, sweepstakes, point-of-purchase displays, etc. Commonly seen by consumers, these incentives are even more widely used through the marketing distribution channels as an inducement to carry a particular brand and to secure favorable shelf space. But over-emphasis on price can hurt profits and long-term brand equity and loyalty.

3) Public relations. In the last decade, public relations has become one of the fastest-growing sectors of marketing communications. A primary benefit is that it is perceived as having higher audience credibility than advertising. Public relations is now fully integrated into the marketing communications plans of most major companies.

a) Contemporary marketers have adopted many of the techniques of the two-step flow (media providing information to opinion leaders who, in turn, influence the general public) and other public-relations practices to develop similar programs of influencing the purchase of brands. More recent techniques include buzz, guerilla marketing, and word-of-mouth marketing. The key to their success is to engage marketplace influencers.

b) The key to successful public relations is to view it as a complement rather than a competitor to advertising. Public relations and especially word-of-mouth advertising tend to work best at the introductory stage of building brand awareness with advertising taking over to build long-term brand loyalty.

c) Unlike advertising, a public-relations message is ultimately controlled by the media. The media make decisions concerning when, where, and if a particular product story will be carried.

4) Advertising. Paid, persuasive (not neutral or unbiased) messages delivered through the mass media are referred to as advertising communications. Advertising is undergoing dramatic changes as it adapts to new technologies.

B.
During the early development of modern marketing and advertising, these components were viewed separately and lacked coordination by many companies; often resulting in confusing and sometime contradictory messages. In recent years, companies have begun to move toward a consolidation of all areas of the marketing function, especially marketing communications.

C.
The complexity of contemporary marketing communication plans has resulted in a demand for programs that “speak with one voice” and to consolidate all areas of the marketing communication function.

D.
Referred to as integrated marketing communication (IMC)
, emphasis has turned to assuring effectiveness of the “total” marketing communication plan. All marketing disciplines must work together to give a unified message to consumers. IMC also has had significant implications for the way advertising agencies deal with clients.

E.
In coming years, some form of IMC will be even more the norm in the marketing plans of virtually every company. Demands for marketing efficiency combined with new marketing communication channels and an increasingly diverse audience will combine to force greater integration and coordination of all aspects of the marketing function, especially those involved in the communication process.

F.
Although the benefits of IMC are apparent, the implementation of the strategy can be extremely difficult.

5. Advertising: An Institutional Approach

A. Society establishes institutions to bring order to vital activities. An institutional consideration of advertising permits us to see that it is a logical – some would say necessary – requirement for a capitalistic economic system.

B. Advertising is viewed from two related perspectives: (1) its economic role and (2) its social and cultural role in communicating not only product information but also social values.

C. The cultural role is often referred to as its inadvertent role. With the exception of advertising overtly intended to foster some idea or initiative, many of advertising’s social consequences are often unintended by sponsors. One of the major criticisms of contemporary advertising is its effect on the behavior of children. Advertisers must be aware of both economic and social aspects of their advertising; the public has proven itself to be unforgiving when it perceives that certain advertising is exploitive (whether intended or not).

D. Most economists agree that advertising has a utilitarian function in the marketing system – to disseminate product information that allows consumers to know that products exist, to give consumers information about competing brands, and to permit consumers to make intelligent choices among product options. However, the effects of advertising, beyond these strictly functional characteristics are viewed with suspicion in many quarters.

E. It is sometimes argued that advertising creates artificial wants among consumers, because purchases are often made based upon psychological and social factors as well as utilitarian considerations. But, in fact, advertising actually mirrors the mores and behavior of society at any point in time.

F. The roles of advertising fall into three categories:

1) What advertising does for consumers. Consumer behavior is need driven. A purchase is the culmination of a process that begins with the recognition that some problem can be solved by a particular product or service. Advertising’s role in this process is to provide information as efficiently and economically as possible to potential buyers. Closely related to the function of consumer information is the belief that advertising promotes greater choice for the consumer. An age of specialized media targeted to narrow audiences has facilitated the delivery of specialized product information and given consumers greater choices. Customer feedback is critical to tailoring efforts.

2) What advertising does for business. Advertising is one element in a fundamental marketing process known as exchange theory. Exchange theory suggests that the long-term success of a business relies upon a positive and mutually beneficial relationship with its customers. Customers must, however, perceive that they receive value in their purchases. Advertising is a tool to assist businesses in quickly grabbing the attention of the consuming public in order to help offset the enormous costs associated with the production and sale of new and existing products and/or brands.

3) What advertising does for society. In the current environment of social change and diversity, advertisers are hard-pressed to present effective sales messages that are at the same time compelling to the audience and noncontroversial to all segments of the population. Three challenges stand out:

a) Monitoring changes so that a company is aware of what is happening in society.

b) Creating products and services compatible with changing values.

c) Designing marketing messages that reflect and build on the values target markets and individual customers hold.

The intended purpose of advertising is to contribute to the profitable sale of products and a continuing economic expansion that presumably is a benefit for society as a whole. In addition to its economic role, advertising benefits society by providing revenues to support a diverse and independent press system protected from government and special interest control. In carrying out these goals, advertising must be aware of its responsibility as a mirror and monitor of society. Advertisers have a new and different responsibility to society in the way they sell their products and services. New technology and sophisticated research methods have only increased the importance of issues such as consumer privacy and the potentially intrusive nature of advertising.

6. Advertising to Diverse Publics

A. Advertising, regardless of its intended recipients, communicates a message to various groups (business-to-business) and individuals who interpret the message in the context of their own self-interest.

B. Advertisers must take into account the perceptions these various publics will have of the message communicated by businesses. That message can be delivered to any one of the following publics:

1) The distribution channel
. Companies attempt to persuade retail distribution outlets (particularly growing national chains) that they are offering brands with high-consumer demand, plus significant advertising dollar support. Large retailers often demand this support before they agree to stock a brand.

2) Employees. With the goal of building employee loyalty and teamwork, consumer advertising will frequently focus upon quality workmanship and even feature company employees in their message.

3) Current and potential customers. Advertising is often the most efficient means to build brand awareness among new customers and enhance brand loyalty among current buyers.

4) Stockholders. The majority of ordinary customers hold ownership in many of the companies they patronize. Advertising serves to build strong brand awareness and a positive reputation, which in turn, keeps stock prices high.

5) The community at large. Corporations want to be viewed as good neighbors in the localities housing their production facilities. Public opinion must be positively maintained in order to properly deal with inevitable local disputes regarding taxes, noise levels, pollution, zoning ordinances, etc.

C. Advertising functions within a matrix of political, legal, economic, and cultural environments. The entire range of publics must be considered when planning an advertising campaign.

7. The Components of Advertising Strategy

A. Advertising should be designed to reach those consumers who are interested in the particular product features and benefits that a brand offers. The most successful brands are those with features and benefits unique within a product category and, consequently, those that hold a differentiated position in the minds of consumers. Advertising’s job is to turn these product benefits into an attention-getting story that appeals to prospective buyers.

B. This section will discuss some of the primary elements of successful advertising.

C. Brand name. An established brand name that customers recognize and respect is one of the most valued assets of a company. One of the principal uses of advertising is to enhance brand familiarity awareness in the minds of consumers by emphasizing consumer benefits of a product.

1) High brand recognition is especially important for products with little inherent product differentiation (e.g., soft drinks and cigarettes) and that are easily duplicated by competitors from a functional standpoint. What competitors cannot duplicate are the years of successful brand building that the parent companies have invested in their brands

2) In the global market, companies are finding that overcoming entrenched local brands is very difficult as they expand into new markets. Hoping to jump-start the process, many foreign companies have bought U.S. brands or even entire companies. As new companies enter the global marketplace, brands will take on even more importance as a competitive tool to differentiate one product from another.

D. Brand extensions. The present fiercely competitive environment has caused companies with high-profile brands to move into “brand extension” as a means to efficiently and profitably introduce new products.

1) Caution, cannibalization. Since 2000, Coke and Pepsi together intro​duced approximately 20 new beverages. Although newly introduced products are quickly adopted by consumers under the umbrella of a strong brand name and can boost sales, there are also dangers present that the sale of new products can erode the sales of the core branded product.

2) Cost of product failures. In addition to cannibalizing existing brands, the failure of a newly introduced product can adversely impact the image of the parent brand and entire product line. And consumers can become confused by the introduction of too many products.

3) Market saturation. When successful brands stagnate and show no growth, product line extension is often viewed as the only way to expand. Loyal consumers, however, may begin to question brand values and benefits if the scope of a brand becomes too large.

4) Risks can be considerable. Mixing market niches can be a tricky business. Virtually all luxury carmakers have expanded into less expensive lines. But how are loyal upscale buyers going to view the prestige and value of brands like Mercedes, BMW, and Cadillac over the long-term? Companies face the problem of how to move brands into a different position (in the consumers’ minds) without harming the core brand.

5) Leaving the parent logo “off” a new product. Defying conventional marketing logic, companies sometimes wish to distance a niche product from the parent brand to build a unique position in a non-conventional market. Nike entered the lower-priced shoe market to broaden its market and enhance overall profits with a $40 running shoe for Wal-Mart that is marketed under the “Starter” brand with no observable connection to Nike.

6) Advantages and Disadvantages of brand-extension strategy:

· Advantages of a brand-extension strategy

a) Saving money by not needing to build awareness for a new and unknown brand name.

b) Adding equity to an existing brand name with a successful extension.

· Disadvantages of a brand-extension strategy

a) Damaging a core brand in the minds of loyal consumers with a failed introduction.

b) Losing marketing focus on your existing brand and/or diluting marketing efforts and budget across several brands.

E. Closing thoughts on branding. Although there is no one strategy right for every company, there is common agreement on one thing. Building brand equity is one of the most important elements of advertising for any company.

8. A Good Product That Meets a Perceived Need

A. The fundamental job of most businesses is to develop products that meet the need of some consumer segment.

Introducing successful products is difficult – only one in seven product ideas that enter the developmental process are successful and nearly half of the dollars allocated to new product introductions go to products that either fail or are abandoned. For examples, visit the closeout chain Big Lots.

B. Creating successful new products begins with the premise that companies are not offering a physical object but, rather, the means of solving a problem. The marketer’s fundamental task is not so much to understand the customer, as it is to understand what jobs customers need to do.

C. When evaluating the marketing potential for innovative products or product line extensions, firms often have to determine the social and psychological tendencies of their prospects before moving ahead. For example, Kodak’s historical domination of the home photography market by appealing to women and emphasizing the emotional appeals rather than product technology. Continuing to emphasize the female market as the family “keeper of memories” has contributed to Kodak’s recent success in digital cameras. Successful products are those that are perceived by consumers as being best for a task, not necessarily those that are considered the winner according to some objective standard.

D. One of the fundamental problems of product development is the fragmentation of both products and audiences. In their quest to gain market share and meet the demands of every market niche, companies have presented consumers with an array of oftentimes confusing alternatives.

E. Attempting to determine the needs of consumers and actually doing so are two different things. Consumers may know their problems but not be able to enunciate the type of products that would solve these problems.

F. It is not unusual for products to face changing preferences in the marketplace. The problem for marketing and advertising is how to adapt to these shifts in consumer attitude without alienating current customers.

1) Starbucks – can it keep its upscale image and at the same time move to drive-through pick-up windows? Drive-through service offers the potential of increasing its breakfast business, but some customers think it cheapens the brand image and reduces it to just another fast-food outlet. The Starbucks example demonstrates that a brand is more than the physical characteristics of a product. Rather, it is a complex combination of product, price, distribution methods, and communication, which creates a sociological, psychological, and physical experience for users.2. Mercedes-Benz – found that rebuilding consumers’ trust in a brand is much harder than gaining it in the first place. To win back customers lost due to some quality-control problems in the early 2000s, Mercedes launched an extensive advertising campaign..

G. Product success depends upon reliable research.

1) All advertising and promotional messages depend upon relevant information to create appealing messages.

2) Establishing a priority of consumer wants, however, is often difficult to identify.

3) Conjoint analysis. This technique assists in identifying consumer priorities by asking consumers to weight the importance of many elements or benefits, of products and services; such as pricing, ingredients, packaging, and technical specifications. Taken together, such elements determine consumer preference and help to avoid costly mistakes of emphasizing wrong product benefits in advertising appeals.

H. Successful advertising begins with product development and marketing from the consumer’s perspective. Many companies, such as Proctor & Gamble, are adopting a bottom-up, consumer-centric model of product development and maintenance as opposed to the top-down model of providing customers with products companies hoped they would buy.

9. Sales, Revenue, and Profit Potential

A. Marketing’s contribution to profitability is achieved through a complex balance among sales, market share, promotional expenditures, and cost efficiency. While only the most unsophisticated marketing executives would emphasize sales and revenue goals to the detriment of profits, a number of strategies are used to attain profitability. Established companies use four major approaches to achieve long-term revenues and profits.

1) Developing and expanding new-product niches to reach current customers. Using “gap analysis,” JCPenney looked for gaps in the style preferences of customers and then developed private-branded clothing to fill those gaps in order to set itself apart from its competitors. Today, it is among the most profitable clothing retailers, and it has established a reputation for exclusivity with its in-house brands. Wal-Mart is attempting to move its upscale customers to think of the chain as a place to buy fashion clothing with advertisements in Vogue featuring real customers in much more stylish setting than previous advertisements.

2) Emphasizing profits over sales volume. Ford Motor Company announced a new plan that drastically cut production to match demand. Ford is redesigning and introducing a number of new models with a strategy of giving emphasis to revenue and profitability over sales and market share, underscoring the fact that gross revenue and sales volume can be a misleading gauge of a company’s success.

3) Emphasizing short-term market share rather than profitability. Faced with significant increases in advertising and promotion from arch rival Proctor & Gamble, Colgate-Palmolive made the decision that it had to reduce profit levels in coming years in order to protect market share in a number of product categories, underscoring the need to take a long-term perspective in developing a marketing strategy.

4) Customer tracking – are all customers created equal? Some customers may be a detriment to a company’s bottom line. Some companies have long discouraged continued patronage from some of their buyers. For example, insurers cancel policies for those that “use” the product too often and banks impose significantly higher fees for customers who maintain low balances or write excessive checks.

B.
The bottom line and advertising.

1) With growing emphasis on profit-based accountability, advertising agencies are now being compensated relative to the effect of their promotional efforts on the client’s profits.

2) Corporations too, are giving more scrutiny to marketing and promotional functions and are increasingly being judged on the basis of return on investment.

3) Measurement of advertising effectiveness; a broader view.

a.
Equal weight is now being given to measuring advertising’s ability to “maintain” sales as well as to increase sales.

b.
Keeping current customers is also given equal importance with finding new ones.

c.
Sales alone are not a measure of profitability. Some of America’s largest companies, in sales volume over the past decade, have experienced the largest financial losses.

10. Product Timing

A. Timing is a critical element in marketing and advertising planning and decisions.

B. Monitoring the product life cycle.

1)
Advertising functions differently at different stages of the product life cycle.

a.
Introduction and growth phase—focus is on gaining consumer awareness and building a competitive edge.

b.
Entering the mature phase—advertising strategy takes a longer view and addresses the strengthening of brand equity and a longer horizon for sales development.

2) Product introduction and the advertising that accompanies it are among the most important decisions that determine the long-term success of a company. How improvements are communicated and to what market segments can have a major influence on their acceptance. The key is not just to spot new trends but, rather, to creatively develop products and services to take advantage of them in the marketplace.

a. No matter how good a product is, it can rarely be forced on consumers before they are ready to accept it. Without the current spikes in gasoline prices and more awareness of environmental issues by the public, it is doubtful that fuel-efficient cars would have been accepted. Demonstrating that fuel conservation is not a fad nor is it confined just to the car industry, we are seeing a number of other products touting energy savings.

b. Marketers need to distinguish fads from trends. For example, low-carb eating was going to revolutionize weight maintenance and create a new food industry, but many people thought the diet too restrictive and food makers have withdrawn low-carb products. The current trend to cater to dieters is “portion-control” products. Only time will tell if these products will resonate with consumers.

c. Another example of trend spotting that marketers hope will lead to new-product success is eating on the run. Products such as Tide to Go demonstrate the way trends evolve into an array of products and the importance of timing in the introduction of most new products.

3) Market timing may be a matter of doing something first rather than doing something different. For example, Kimberly-Clark Corporation, maker of Huggies disposable diapers, got a jump on the competition by developing a relationship with expectant mothers shortly after they became pregnant. The idea is to build a relationship so that Huggies will be top of mind as new moms buy their first package of diapers.

4) Timing can also be tactical, involving sales related to specific events or occasions.

C. Timing concerns of agency media planners.

1) Television—when should commercials be run? Primetime? Daytime? Late night?

2) Newspaper—should advertisements be run on weekends or mid-week?

3) Magazine—are weekly or monthly publications more effective?

D. Changing the normal buying season for a product category. Advertising can induce consumers to use a product year-round by informing them of alternative uses. But advertisers must recognize the risk associated with promoting a consumption pattern that is counter to established patterns and preferences.

11. Product Differentiation

A. Product differentiation is the circumstance in which a target audience regards a product as different from others in the category. This difference may be based on some tangible attribute of the physical product, or base on some intangible element including a brand image created in part by advertising. Differentiation is meaningful only if consumers perceive it as an important distinction.

B. In the absence of a strong brand identity built on meaningful differentiation, buyers tend to view all brands in a category as interchangeable. These products are viewed as commodities and purchase decisions tend to be based on price. Such brands cut price to maintain market share and profitability suffers.

1) Volvo is a brand closely associated with “safety.” As a Volvo executive commented, while its advertising may push other features, …” safety is always going to be part of our message.”

C. Products with well-defined positions find that their differentiating characteristics also can play major roles in brand extensions, if the differentiation is transferable to new products.

1) Proctor & Gamble’s Febreze Fabric Refresher was introduced as a laundry accessory to give clothes a fresh scent. Proctor & Gamble successfully extended the brand into air freshener, demonstrating that brand equities can be broader than a single product category.

D. Keeping an open mind when selecting a bundle of benefits to create meaningful differentiation.

1) Product differentiation often involves minor changes in either a product or the position communicated by advertising.

a) Quiznos created a distinct position with toasted sandwiches. This also highlights the problem of product differentiation based on features that can be duplicated by competitors in a reasonably short period.

2) Too often when companies search for product differentiation they concentrate on product functions.

a) Motorola decided that because consumers regarded service and function as equal, it would compete on the basis of design. The RAZR cell phone, intended to capture the youth market, shows that any part of the “benefit package” is open to examination when searching for unique differentiations.

E. The key motivation in the product-differentiation strategy is to reduce the competition for your brand. The more consumers see your products as meaningfully different from competing brands, the less the competition. The key is that prospects see a brand as differentiated in a manner that is important to solve their specific problems.

F. In conclusion, there are two important elements to building product differentiation.

1) We must remember that differentiation is a target marketing technique that requires choosing to appeal to a specific market segment while often simultaneously surrendering consumers looking for features not emphasized in their brands to other manufacturers. . One’s brand position should be inclusive enough to be profitable.

2) And, advertisers bare a responsibility to the general public to promote meaningful product differences, not inconsequential product features. Successful products demonstrate significant competitive advantages.

12. Price

A. Price is closely related to product differentiation. Price is most often dictated by favorable consumer perceptions of the value of a product – a perception that is created in part by advertising.

1) A primary function of advertising is to create, or enhance, a positive gap between the price of a product and the value the average consumer assigns to the product. The greater the value gap, the more insulated the product is from price competition.

B. A major part of positioning a product in the market and in the minds of consumers is setting the price.

1) Price is often equated with value and plays an important role in maintaining sales.

2) Price defines who your competitors are.

C. New technology is allowing marketers to be more flexible and precise in relating price to specific market segments, seasonal selling, and particular items within a product line.

1) Many marketers have used a strategy known as yield management to even out supply and demand. This process has become more sophisticated and reliable with software programs.

2) At the retail level, research technology allows managers to analyze each store as its own discrete market. Known as variable pricing strategy, it offers “each customer a different price at a different point in time.”

D. A low-price strategy can be an important element in the marketing process. Depending on the product type, pricing strategy can be both a means of market entry for new products and a means of product differentiation for mature products. Companies have found that low-price strategies must be augmented by a strong consumer promise to be successful.

E. Price plays a major role in advertising. An advertising plan must not ignore the basic price/value perceptions of its target audience. Pricing strategy, to a large degree, determines marketing strategy and the success or failure of brands.

13. Variations in the Importance of Advertising

A. Because companies differ in terms of their marketing goals, competitive situation, product line, and customer base, we would expect that advertising plans demonstrate markedly different approaches from one company to another.

1) Even within the same industry, companies often demonstrate large discrepancies in the use of advertising.

B. Most firms use advertising “in concert with” a mix of other promotional activities to create a synergy to reach consumers.

C. The role that advertising plays in a company’s promotional strategy depends on a number of factors including:

1) Corporate preference for various segments of marketing communication channels. As a number of major companies experiment with marketing through the Internet, event marketing, word-of-mouth advertising, and public relations, we will continue to see a trend to supplement or replace dollars previously spent in traditional advertising media.

2) High sales volume tends to lower advertising to sales ratios. Consumers need only be reminded of the brand, not “sold” on it. And, for these most dominant brands, the cost of attaining new customers through additional advertising might be nonproductive.

3) Industries with a number of competing firms and/or extensive competition. Despite being the acknowledged leader in the snack-food segment, PepsiCo’s Frito-Lay division announced a 50 percent increase in its advertising budget in 2005 in an effort to prevent loss of market share from new competition

4) Product categories with widespread competition and little perceived product differentiation. Carmakers rank number one among all advertisers in total advertising spending; telecommunication companies rank number two. This reflects the degree of competition among major manufacturers as they try to maintain or enhance market share.

5) Reversing sales or market share declines. Often, smaller brands in a category must allocate a significantly higher percentage of sales to advertising to compete with larger competitors.

D. Many variables must be considered when a business is deciding the role that advertising will play. Companies, even those with similar product lines, not only use different levels of advertising as part of their marketing communication mix but also utilize vastly different advertising plans in terms of media used, scheduling of advertising placements, and the messages communicated.

E. Variances also exist in order to keep a fresh approach to promotional communications, which can get stale over a period of time among consumers.

14. Advertising and the Marketing Channel

A. One of the most important aspects of marketing is the development of the marketing channel.

Advertising plays a major role in moving products through various marketing channels, from production, to distribution, to end-of-channel customers.

B. Traditional channels remained unchanged over most of the twentieth century. The past decade, however, has seen many changes resulting from technological innovations.

1) With the advent of the World Wide Web, travelers can now bypass travel agents and go directly to airlines and hotels to make reservations.

2) Digital cameras are greatly impacting film processors.

3) The downloading of music is now significantly impacting the distribution and sale of recording companies’ products.

The “traditional” marketing channel has largely been replaced by distribution and marketing communication systems that are unique to each seller.

C. One of the most fundamental changes has been the control of both marketing and communication channels by the consumer. As one electronic marketer commented, “People are using the Internet not only to gather information about brands, but about product selection and variations of products and pricing.”

1) The Internet’s use is even more dramatic among business-to-business buyers. Research shows that the Web is an excellent means of reaching B2B decision makers, but more important, it is the best way to influence purchases.

D. Marketing strategy not only determines the role of advertising and its budget but also plays a major part in decisions concerning media choices.

1) The use of coupons will dictate the use of print media.

2) Product demonstrations will call for the use of television or the Internet.

3) Complex messages may require magazine media.

4) Local messages will employ newspaper media.

E. Although consumer advertising is the most familiar to us, it is only one category of marketing communication necessary at any number of distribution levels. Advertising must both communicate and carry out marketing goals.

F. Evaluating advertising’s role in the marketing process. Marketers must continually assess the success of the directness of communication to intended markets and evaluate the time frame in which this is accomplished.

G. Intended level of response in the marketing channels.

1) Direct-action, short-term advertising—typically retail promotion focusing on stimulating immediate consumer response.

2) Direct-action, long-term advertising—continual promotion over a longer period of time for products with relatively long purchase cycles.

H. Indirect advertising – intended to affect sales only over the long term.

1) Appeals in promotion, which concentrate on the general attributes of the manufacturer rather than specific product attributes.

2) Most institutional or public relations advertising. The exception would be remedial public relations advertising designed to overcome some immediate negative publicity.

15. Advertising to the Consumer

A. National advertising. The advertising by the owner of a trademarked product (brand) or service through different distributors or stores.

1) Not limited to giant brands like Nike, Tide, and Chevrolet.

2) Sales message in national advertising is general in nature and lacks the specifics found in retail promotion such as price, local availability, service, hours of operation, and installation.

3) Geographic targeting began in the 1980s, first regionally, and then started reaching more narrowly defined segments on a market-by-market basis.

4) Advances in computer technology are now allowing individual tailoring based upon lifestyles and product usage.

B. Retail (local) advertising. Advertising by a merchant who sells directly to the consumer.

1) Consolidation of the retail industry has had pronounced effects on the way retail marketing is conducted.

a) Customers more and more are doing “one-stop shopping.”

b) Difficult to categorize retailers.

c) In 2005, Federated Department Store, Inc. announced it would adopt the Macy’s name for all its regional department store chains. This brand consolidation allowed Federated to implement national advertising strategies and provided the opportunity to move into national media and promote its in-store exclusive brands on a national basis.

2) Move to national retailing has significant ramifications for newspapers and local radio stations, experiencing advertising spending shifts as retailers move to national promotional plans.

3) Retail consolidation has also changed the relationship between retailers and manufacturers.

a. Manufacturers provide a number of product, merchandising, and promotional services specific to each retailer to gain entry.

b. At the same time, manufacturers find themselves increasingly competing with in-store brands.

C. End-product advertising. Some products are not purchased directly by consumers, but are acquired by them by virtue of being an ingredient or component part of other products.

1) End-product advertising began in the 1940s when DuPont began promoting its Teflon non-stick coating on cookware.

2) After a five-year effort, Microsoft’s “Intel Inside” dominated the end-product inclusion in computers hardware of nearly every major manufacturer.

3) Promotion of such products is termed end-product advertising (or branded ingredient advertising).

4) When an end product is highly recognizable and adds value, its promotion also builds consumer demand for the sale of the main product of which it is a part.

D. Direct-response advertising. Avenues for direct-consumer response to pro​motional appeals have long been a part of this country’s history.

1) Ben Franklin is credited with creating America’s first direct sales catalog in 1744.

2) The modern era of direct selling was ushered in with the publication of the Montgomery Ward catalog in 1872.

3) Techniques and media of direct-response advertising have changed dramatically, but not the necessity to reach consumers with personal messages with offers designed to meet their specific needs.

a. As advertisers have shifted dollars from traditional mass media to more targeted vehicles, direct-response advertising has grown to more than $170 billion or almost half of all advertising expenditures.

b. New technology, such as the Internet and other interactive media, provides a catalyst for future growth of direct response.

c. Advertisers in traditional media will increasingly adopt direct-response techniques.

16. Advertising to Business and Professions

A. The average consumer does not see a large share of advertising effort, which is directed to business, industry, professions, and all stages of the marketing distribution channel.

B. Business-to-business advertising (B2B) is one of the fastest growing categories of advertising.

C. Promotion in this category is unlike the traditional media approach to which the ultimate consumer is accustomed.

D. Primary promotional B2B tools include business publications, personal selling, telemarketing, and Internet sales.

E. B2B advertisements tend to be factual, efficiency- and profit-oriented, rather than the emotional appeals seen in consumer ads.

F. The buying process is different for B2B.

1) Purchase collaboration. Purchases are often made collectively by a committee or group of decision makers; combining experience, perspectives, and business needs.

2) Purchase specifications. Products are bought according to precise, technical specifications. Both buyers and sellers need significant knowledge about the product category.

3) Purchase cycles. Impulse buying is unheard of.

4) Purchase scale. The dollar volume of purchases is often substantial.

17. Categories of Business Advertising

A. Trade advertising. Not readily recognized by average consumers; used by manufacturers to promote their products to wholesalers and retailers.

1) Promotional messages emphasize profitability and advertising support.

2) Products sold can be those for resale or those needed by stores for administration and operations.

3) Trade advertising objectives.

a. Gain additional distribution and retail outlets.

b. Increase trade support, eliciting favorable shelf space and point-of-purchase displays.

c. Announce consumer promotions to demonstrate advertising support.

B. Industrial advertising. Manufacturers are also consumers, purchasing machinery, equipment, raw materials, and component parts. Companies selling to manu​facturers must target their sales messages to this market.

1) Advertising is placed in publications directly related to particular industries.

2) In addition, companies employ direct mail, telemarketing, and personal selling.

3) It is directed to a very small, specialized audience.

4) Purchases are usually made through a number of decision makers.

5) Industrial advertising informs companies of new products and builds brand awareness.

6) Personal follow-up through sales representatives helps to close the sale.

C. Professional advertising. Advertising is directed to individuals or groups of individuals in various professions such as medical, legal, and engineering.

1) The clientele of these professions purchase whatever products are recommended; professionals greatly control consumer choice.

D. Corporate or Institutional advertising. Advertising done by an organization speaking of its work views, and problems as a whole, to gain public goodwill and support rather than to sell a specific product.

1) While institutional advertising remains a long-term image-building technique, in recent years it has taken on a decided sales orientation in terms of the audiences reached and intent of communication.

2) Several objectives of corporate advertising are suggested:

a. Establishing a public identity.

b. Explaining company’s diverse missions.

c. Boosting corporate identity and image.

d. Gaining awareness with target audiences for sales across a number of brands.

e. Associating a company’s brands with some distinctive corporate character.

18. Non-Product Advertising

A. Idea advertising. Advertising used to promote an idea or cause rather than to sell a product or service.

1) Not a new phenomenon. Number of public interest groups using advertising and the sophistication of the communication techniques being employed is new.

2) Idea advertising is often controversial.

a) Many of the issues being addressed through promotional campaigns are controversial in nature such as gun control, abortion, animal rights, and environmental protection.

b) Critics think advertising messages are too short and superficial to fully debate many of the issues.

c) Proponents argue that it is the most practical means to reach mass audiences.

3) The increasing sophistication of media’s ability to narrowly target audiences by ideology will make this type of advertising more prevalent in the future.

B. Service advertising. America is increasingly becoming a service economy, with consumers seeking a wide range of help from financial planning and advice to child care. Services, although not tangible like products, still need good advertising to be sold.

1) Strong institutional component. Similar to corporate advertising, providers of services need to build consumer awareness over a prolonged period of time and develop distinct differentiation among competitors.

2) Some basic principles of service advertising include:

a. Feature tangibles. Adding a personal dimension through testimonials and stressing service benefits.

b. Feature employees. Building trust with customers by demonstrating the quality of the firm’s employees; an added benefit is improvement of employee morale.

c. Stress quality. Advertising messages should emphasize consistency and high levels of competency.

19. Government Advertising

A.
Advertising has been used by governmental agencies for generations and labeled as “propaganda.”

B.
The more recent growth in numbers of government services and programs has, however, resulted in greater use of traditional advertising by government agencies.

C.
Traditional advertising techniques are being applied by an array of national agencies such as the volunteer armed forces, consumer protection agencies, and environmental and health initiatives.

D.
State governmental agencies, too, are finding the use of advertising to advise the citizenry on beneficial services related to savings plans for higher education.

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Chapter1

Background of Today’s Advertising

Chapter Objectives

The field of advertising is part of the fabric of the culture and the economy. It cannot be separated from the country’s political, economic, and cultural environment. The text will examine the circumstances that fostered the development of various advertising media through the years. After reading this chapter you will understand:

1. the social and economic environment that nurtured advertising in its early years.

2. advertising’s role in U.S. economic development.

3. advertising support of the American media system.

4. the fight for ethical and responsible advertising.

5. advertising growth during the post-World War II era.

6. modern advertising in an era of fragmented audiences and media.

Chapter Overview

Advertising began in its primitive stages in the late nineteenth century and evolved in a more sophisticated manner in the twentieth century, focusing on consumer research and creative selling strategies. To understand the origins of modern advertising, we must examine the conditions that make it possible. Advertising is a communications tool that requires two primary components:

1. A centralized exchange where advertising informs consumers about the availability of goods and services through marketing intermediaries.

2. An economy where supply surpasses demand and consumers are faced with an abundance of product choices. Advertising provides consumers reasons to select one brand or product category over another.

Lecture Outline

1. Introduction

A. In the 50 years following the Civil War, a number of other factors came together to create the foundations for this multi-billion dollar industry:

1) With the beginning of democratic ideals and public education becoming more accessible to the general populace, a more literate population created a demand for newspapers and magazines.

2) The prosperous industrial revolution fostered efficient manufacturing and technical expertise, which led to the mass publication and circulation of magazines and newspapers that carried advertising, which helped finance the publication. Growth in job skills led to higher wages and a labor movement from the farm to urban centers.

3) The entrance of railroad and telegraph capabilities connected the country economically and culturally.

4) Most significantly, however, it was the introduction of national brands that would bring the industry of advertising to fulfillment of its real promise. Nationally branded goods changed the relationship between buyers and sellers from a system of commodity goods to a marketing system, which focused on product quality and identification. This would ultimately lead to the rise of mega-retailers during the 1990s. Led by companies like Quaker Oats, entrepreneurs rushed to be first in the marketplace with branded goods.

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5) The growing middle class as buyers for these products gave the support necessary for the advertising industry to enable it to develop the basic functions found among modern agencies and corporations today.

2. Advertising’s Modern Era: Research and Responsibility

A. The two elements missing in most advertising during the early years of the last century were:

1) An ethical framework for creating promotional messages.

2) Valid and reliable research to measure advertising effects.

B. The first thinking reflected in the rising democratic movement in America held that the individual was quite rational and capable of discerning truth from falsehoods in advertising claims of the marketplace.

1) It was thought that little regulation would be necessary.

2) Many of the claims of nineteenth century advertisers, however, were outrageous and soon there was a call for consumer protection. This gave rise to zealous critics of advertisers who condemned many claims and demanded the curtailment of both advertising research and the messages themselves.

3)
Although acknowledging some advertising excesses, the practices were almost laughable in most cases. There were a number of more enlightened advertisers, however, who did develop effective advertising research techniques. This progress gained momentum in the 1950s.

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3. Beginnings

A. The urge to advertise has been a part of human nature for the past 5,000 years.

1) Around 3,000 B.C., the Babylonians created clay tablets with inscriptions for an ointment dealer, a scribe, and a shoemaker.

2) The Egyptians used papyrus to communicate.

3) The Greeks used town criers to spread the news, a practice that would be widely adopted throughout Europe.

4) The French went one step further, requiring a town crier to use a horn to promote local wine and to offer free samples.

5) The walls of the ruins of Pompeii were painted with numerous advertisements for Roman merchants.

6) Outdoor advertising became a staple in early advertising attempts and also included a variety of store signs, which featured graphic designs, instead of words, representing the products sold. Most people were illiterate, but could easily understand the nature of a business by the visual image on the signage.

B. We begin our discussion of the foundations of modern advertising by examining its history, which we will divide into four broad periods:

1) The premarketing era. From the start of product exchange in prehistoric times to the middle of the seventeenth century, buyers and sellers communicated in very primitive ways.

2) The mass communication era. From the 1700s to the early decades of the twentieth century, advertisers were increasingly able to reach large segments of the population.

3) The research era. Beginning in the 1920s, advertisers have improved the techniques for identifying and reaching consumers.

4) The interactive era. The newest era, consumers will use communication on an interactive basis, determining when and where they can be reached with promotional messages.

C. The most important recent change in the business climate has been the growing sense of social responsibility within the advertising community.

4. The Move to Creativity in Advertising

A. In the early decades of the nineteenth century businesses turned their attention from merely acquiring media space to creativity and persuasion in their messages.

1) By 1900, serious brand competition was developing in several product categories.

2) Innovative marketers saw the need to sell on the basis of style and luxury rather than utility. As a result, agencies emphasized creative expertise and started providing full-service advertising.

3) Agencies turned their attention to behavioral and social science research to uncover underlying consumer motivation. John Watson, of Johns Hopkins, was considered the “father of behavioral research.”

4) General Motors’ Alfred Sloan, Jr. introduced a new appeal concept that viewed automobile purchases as a cosmetic, style motivated product rather than low-cost transportation. He is credited with introducing the idea of planned obsolescence; vehicles being discarded because of loss of status and not for utility reasons.

5) Companies began to focus upon building enduring brand awareness.

5. The Development of Print Media

A. The early history of advertising cannot be separated from early print media that carried its messages. The growing mass-media circulation allowed advertisers to reach more and more buyers and to do so relatively free from government regulation.

B. Newspapers as an advertising media.

1) Historically, newspapers were the primary medium for information and commerce.

2) Classified advertising had its first beginnings in the Roman Republic with government-published news sheets known as “acta diurna.”

3) Johann Gutenberg’s invention of the moveable type opened the door to more formal publications such as The Oxford Gazette first published in 1665.

4) In the United States, Benjamin Harris published the first colonial newspaper in 1665. This was followed in 1704 by the Boston Newsletter, the first American newspaper to carry advertising.

5) By 1800, every major city in the United States had daily or weekly publications.

6) A so-called “penny press,” which was affordable to the general population was introduced by Benjamin Day’s The New York Sun.

7) By 1900, newspapers such as the New York World and the Chicago Tribune had circulations approaching 500,000, establishing the long-standing model for financial support of the industry from advertising revenues.

C. Magazines
offer a regional and national scope.

1) The earliest U.S. colonial magazines offered little promise of success as a mass medium. William Bradford’s American Magazine and Benjamin Franklin’s General Magazine died quiet deaths after only a few issues.

2) Despite the rough start a number of magazines emerged, numbering more than 100 by 1800 and targeted their content to the wealthy, educated elite.

3) Barriers to distribution including high transportation and postage costs impeded the publication industry until passage of the Postal Act of 1879 through which magazines enjoyed significant postal discounts.

4) Magazines continue to build readership and by the end of the nineteenth century, publications such as Harpers Monthly, Atlantic Monthly, and Century were widely popular. Some magazines, following Benjamin Day’s business plan, began to include editorial and article content that spoke to the concerns of American families and included contributions from major writers such as Mark Twain. This trend tended to build readership nationally, beyond city limits.

5) The magazine became a unifying means of communication, simultaneously presenting identical facts, uniformly treated, in every locality.

6) By 1900 Ladies Home Journal boasted one million in circulation.

7) Advertising support for these magazines came from national manufacturers and national brands such as Quaker Oats and Uneeda Biscuit. It was common for magazines to carry 100 or more pages of advertising

8) Advertising revenue became crucial to financial success because subscription revenue fell far short of covering costs.

9) By 1920, high-quality color advertisements were commonplace in most major publications. Henry Luce and Briton Hadden led the way through their publication of Time, reaching millions of readers and making advertising more affordable to marketers.

6. Mass Production Matures

A. Mass-production techniques begin in the English textile industry in the mid-1700s and migrated across the ocean to America where the colonists develop the concept of interchangeable parts in the manufacture of firearms used in the Revolutionary War.

B. By the 1850s, mass-production techniques began to expand into other industries.

C. But it was the application of mass production to the automobile industry that had the greatest impact on American manufacturing.

1) Industrial innovators including Henry Leland (Cadillac), Louis Chevrolet, Albert Champion, Walter Chrysler, and John and Horace Dodge led the way.

D. Henry Ford, however, became the pre-eminent leader of the automotive industry by mass-producing an automobile within reach of the ordinary family budget. He achieved high volume, mass selling, and competitive pricing through the aid of advertising.

E. A growing manufacturing sector required more and more consumption to keep factories humming. The advertising industry grew to encourage this consumption.

7. The Advertising Agency

A. In 1841, Volney Palmer starts the first advertising agency.

B. In 1869, George Rowell published Rowell’s American Newspaper Directory, the first movement toward published rate cards and verified circulation.

C. By the end of the nineteenth century, major full-service agencies appeared such as J. Walter Thompson, N. W. Ayer & Son, and Batten & Company (forerunner of BBDO).

D. In 1917, the American Association of Advertising Agencies was founded with 111 charter members, which has grown to 500-member agencies today.

E. By the 1930s, agencies such as McCann-Erickson and J. Walter Thompson opened overseas offices for global reach.

F. In 1954 Marion Harper organized Interpublic Group , as a holding company for separate agencies that could then serve competing accounts and to conduct research, provide TV production, and handle client public relations needs.

1) This was the first formal move toward integrated marketing by a major advertising company.

8. America Enters the Twentieth Century

A. The development of American society through the nineteenth century was impressive by any standard.

1) Positively: the development of American industry, abolition of slavery, urbanization, expansion of railroads, evolvement of instantaneous communication, and the rise of the United States as a world power.

2) Negatively: the emergence of a business atmosphere of laissez-faire policies, corruption in the Grant administration, and excesses of big business and advertising that led to stricter regulation of business practices by the federal government.

B. The Pure Food and Drug Act (1906).

1) Concerns about public safety in the food supply.

2) Americans became more dependent on others for their food, due to the movement from farms to urban areas.

3) Many mass produced food and drug products lacked purity, placing consumers’ health in jeopardy.

4) Advertising claims for these products became outrageous. Some media restricted or completely banned medical advertising. In 1905, Colliers magazine published a 10-part investigative report of the patent medicine industry. With its focus on food safety, H. J. Heinz sold products in clear glass jars to show untainted food.

*****NOTES: Use Exhibit 1.9 Here*****

5) By 1906 public opinion prompted Congress to protect public health with the passage of the Pure Food and Drug Act.

6) More problems surfaced, however, such as the requirement for truth in labeling, but with no requirement for labels themselves and poor enforcement authority by the government.

7) Modern food and drug enforcement did not begin until passage of the 1938 Federal Food, Drug, and Cosmetic Act and has since been amended to include pesticides, color additives, and a stronger enforcement role for the FDA.

C. The Federal Trade Commission Act (1914).

1) The FTC’s original mandate was to protect one business owner from the unscrupulous practices of another.

2) In 1914, there was widespread alarm about big business antitrust violations.

3) Danger existed that big business titans such as John D. Rockefeller would drive competitors into bankruptcy and create monopolies in industries like oil and steel.

4) The FTC Act essentially said that unfair business-to-business practices were illegal.

5) In 1938, the Wheeler-Lea Act extended the scope of protection to consumers as well as businesses.

6) Today the FTC is the primary federal enforcement agency to ensure that advertising claims and sales practices are honest and truthful.

7) Chapter 24 will discuss in more detail the legal bodies concerned with truthfulness in advertising, as well as examine self-regulatory mechanisms.

9.
Advertising Comes of Age

A. Introduction.

1) During the early years of the twentieth century, advertising executives recognized that they had to do more to insure public confidence.

2) Advertising clubs were formed and subsequently called Associated Advertising Clubs of the World (now known as the American Advertising Federation).

3) In 1916, the ad clubs formed vigilance committees that developed into today’s Council of Better Business Bureaus.

4) Formed for the purpose of improving advertising effectiveness was the Association of National Advertising Managers (1910), today known as the Association of National Advertisers (ANA).

5) In 1917, the American Association of Advertising Agencies was formed to also improve advertising effectiveness and agency operations. Today its members place 75 percent of all advertising.

6) In 1911, Printers Ink trade paper prepared a model statute for state regulations to regulate truthfulness in advertising.

7) In response to exaggerated circulation claims, the Audit Bureau of Circulations (ABC) was established in 1914 to issue reports of accurate media circulation figures.

8) Addressing the Associated Advertising Clubs of the World, in Philadelphia, President Woodrow Wilson was the first president to give recognition to the importance of advertising.

B. Advertising in World War I.

1) World War I marked the first time that advertising was used to support the war across a broad spectrum of initiatives — building patriotic sentiment, selling government bonds, encouraging conservation, and promoting numerous war-related activities.

2) N. W. Ayers & Sons agency prepared and placed ads for the first three Liberty Loan drives and donated part of its commission to the drive.

3) As other agencies joined the war effort, the government division of advertising of the Committee of Public Information coordinated the efforts of individual agencies.

C. The 1920s.

1) Throughout most of the 1920s, America experienced enormous economic growth fueled by postwar euphoria and unprecedented business expansion.

2) During this period truck and tire production grew substantially due to the increasing network of good roads throughout the nation.

3) Truck production increased from 92,000 in 1916 to 322,000 in 1920.

4) Door-to-door delivery by manufacturers to retailers, chain stores, super​markets, and self-service stores saw rapid growth.

5) Highways also spurred the demand for passenger cars.

6) New products appeared in profusion.

7) The birth of radio during the 1920s, and the concept of installment buying, spurred the need for advertising to communicate product offerings.

8) The good times of the 1920s came to a halt with a worldwide depression.

D. Introduction of radio.

1) Invented by Guglielmo Marconi in 1895 as the first practical system of wireless communication, using Morse code.

2) Voice transmission first made its appearance in 1906, but was looked upon as a hobby with little commercial potential.

3) Westinghouse established KDKA in 1920, the first commercial station in Pittsburgh, PA, soon followed by nearly 500 licensed stations by 1922.

4) Soon radio began broadcasting sporting events and later, entertainment shows.

5) By the mid-1920s, programming emphasis shifted from local stations to networks.

6) Radio Corporation of America (RCA) established two NBC networks with 24 stations, followed the next year by CBS with 16 stations.

*****NOTES: Use Exhibit 1.10 Here*****

7) By the 1930s, radio sets were more affordable and the great depression greatly increased listenership as radio was a source of free entertainment in tight economic times.

8) News, drama, and comedy shows were becoming radio-programming standards.

9) In 1934, the radio industry came under government control of the Federal Communications Commission (FCC).

10) By 1939 there were more than 1,464 radio stations and nearly 95 percent of American households owned at least one radio. Today, that number has grown to five.

11) Radio advertising now commands about $18 billion annually.

E.
The Great Depression of the 1930s.

1) The 1929 stock market crash causes slowdown in advertising growth.

2) Major causes of the Depression combined to discourage consumer spending and manufacturing output with a resulting negative impact on advertising.

3) Although radio advertising experienced some gains, it was a catastrophic time for business and the economy.

4) Even with the start of World War II, wartime restriction on consumer goods did not allow rejuvenation of advertising until after the war.

F. Advertising during World War II.

There was a return to the wartime conditions experienced in World War I, with production turning to wartime goods and rationing of civilian materials.

1) Advertising continued in order to keep brand names visible, however, attention turned to promoting American conservation and volunteerism.

2) Both government and private enterprise sponsored advertising messages, which encouraged greater consumer conservation.

3) The War Advertising Council.