Page 612 - Business Principles and Management

Chapter 22 • Pricing and Promotion

message to the intended audience. The most widely
used forms of advertising media are classified by FIGURE 22-5 Advertising can accomplish many
purposes. Businesses carefully plan each ad to focus
categories in Figure 22-6 (see p. 600).
on a specific purpose.
PLANNING AND MANAGING ADVERTISING
Businesses have many choices of media to use to 1. To inform and educate consumers.
communicate information to customers. However, 2. To introduce a new product or business.
planning an advertising program involves more 3. To announce an improvement or product change.
than selecting the media. Advertising should be 4. To reinforce important product features and benefits.
planned to support other promotion and market- 5. To increase the frequency of use of a product.
ing decisions. Most businesses that spend a signifi- 6. To increase the variety of uses of a product.
cant amount of money for advertising throughout 7. To convince people to enter a store.
the year develop an advertising plan. The plan 8. To develop a list of prospects.
outlines communication goals and specifies an 9. To make a brand, trademark, or slogan familiar.
advertising budget, a calendar of advertising activi- 10. To improve the image of a company or product.
ties, and how the advertising will be evaluated. 11. To gain support for ideas or causes.
Small businesses often need help in develop-
ing their advertising plans and writing their
advertisements. A printing company may have
specialists who can write the copy and design the
advertisement for a direct-mail piece. The people who sell advertising space
may offer suggestions for preparing newspaper ads. Radio and television sta-
tion marketing people may also help plan advertising.
As the business grows, the owner has the option of hiring someone to handle
the advertising or of placing all of the company’s advertising planning in the hands
of an advertising agency. Full-service agencies provide all the services related to
planning and producing advertisements for all media and buying the space or time
for the ads in the media. Most agencies also offer research services to determine
customers’ product and information needs. For their services, advertising agencies
usually charge a percentage of the total amount spent for the advertising, but some
may charge for the actual costs of developing and placing the ads.
Some very large companies have a complete advertising department that per-
forms all the functions of an ad agency. Because of the amount of advertising
large companies do and its cost, it is more efficient for those companies to have
their own advertising personnel than to pay an ad agency.

THE ADVERTISING BUDGET Companies allot an amount for advertising when they
develop their overall company budget. Most businesses plan the advertising pro-
gram for one year or less. Of course, emergencies may arise that require a quick
decision, but planning helps avoid budget misuse. If the company is developing
a new product, it will usually prepare an advertising budget to support the new
product’s introduction into the market.
Large businesses often develop separate advertising budgets for new prod-
ucts, product lines, customer groups, or market regions. Separate budgets make
it easier to determine the effects of specific advertising on sales and profits.
The amount a business spends on advertising depends more on the charac-
teristics of the product and target market than on the competition. A business
with a loyal group of customers and a product that has been in the market for
a long time may need to spend less than a business with a new or very complex
product or one positioned in an extremely competitive market. A business that
relies on advertising for the majority of its promotion will, of course, spend a
larger percentage of sales on advertising than a business that has a balanced
promotional program of advertising, personal selling, and sales promotion.

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