8

Objective Setting and Budgeting

Marcom Insight: Advertising in the Insurance Industry

  • Overview of Geico's Advertising:

    • Geico is known for its creative TV commercials featuring a gecko with an Australian accent.

    • The effectiveness of these commercials is assessed not on creativity but on the advertising budget and success in the competitive insurance market.

    • Major competitors include State Farm, Progressive, and Allstate, engaging in price wars and aggressive advertising for new customer acquisition.

  • Advertising Spending:

    • Geico was the leading automobile insurance advertiser in 2014, spending over $1.1 billion on advertising, outpacing State Farm by $560 million.

    • Their advertising strategy, which heavily involved digital channels, has made them a leader in new-customer acquisition, with 97% awareness among consumers.

    • Awareness figures:

      • Geico: 97%

      • Allstate: 97% (due to “Mayhem” campaign)

      • State Farm: 80%

    • Geico succeeded in achieving double-digit growth in market share (around 13%) mainly by transitioning to online quotes, particularly appealing to millennials (48% prefer online quotes).

Chapter Objectives

  1. Understand the marcom objective setting process and criteria for effective objectives.

  2. Appreciate the hierarchy-of-marcom-effects model and its relevance for setting marcom objectives.

  3. Discuss the integrated information response model for integrating advertising and direct product experience.

  4. Understand the distinction between sales and communication as marcom objectives, and between vague versus precise thinking.

  5. Know the relationship between a brand’s share of market (SOM) and share of voice (SOV), and implications for advertising budget.

  6. Describe various heuristics that guide practical budgeting decisions.

Introduction to Marcom Objectives

  • Definition of Marcom Objectives:

    • General outcomes that marcom elements (advertising, promotions, etc.) aim to achieve.

    • Objectives become specific goals when time and magnitude (e.g., increase of 10% within one quarter) are included.

    • Objectives form the foundation for subsequent marketing decisions.

Key Objectives for Marcom Communicators:

  • Facilitate successful new brand introduction (using advertising, promotions, social media, etc.).

  • Increase sales of existing brands through enhanced usage frequency or variety (utilizing advertising, promotions).

  • Inform trade and consumers about improvements (via personal selling and promotions).

  • Create brand awareness (via mass media, social media, etc.).

  • Enhance brand image (through various marketing communication strategies).

  • Generate sales leads (using advertising and personal selling).

The Hierarchy of Marcom Effects

  • Understanding Consumer Progression:

    • The hierarchy-of-effects model suggests that customers experience different psychological stages, culminating in full brand loyalty.

    • Stages include:

      1. Unawareness

      2. Awareness

      3. Trial (first purchase)

      4. Belief formation

      5. Attitude reinforcement

      6. Brand loyalty

    • Advertising helps move consumers from the initial ignorance of a brand to active purchase.

    • Success in achieving higher levels requires effective strategy aligned with consumer involvement.

Environmental Factors Affecting Consumer Expectations

  • Expectation Creation:

    • Advertisements must promise product benefits that can lead to consumer trial and ultimately, loyalty (e.g., Pegetables for dogs).

    • Trial purchases can be influenced by promotions and advertisements working together.

    • Techniques for encouraging trials include free samples, coupons, and significant discounts for high-value items.

Integrated Information Response Model

  • Model Overview:

    • The integrated model suggests that both advertising and personal experience influence consumer attitudes and intentions toward a brand.

    • Information Sources:

      • Advertising

      • Direct product experience

    • Models of cognition show two forms of beliefs:

    1. Lower-order beliefs (awareness, impressions)

    2. Higher-order beliefs (based on product experience)

    • Direct experience significantly influences higher-order affect and commitment to a brand.

    • Emphasis on trial and repeated usage leads to brand loyalty, which is strategically crucial for businesses.