Some companies use the affordable method: They set the promotion budget at the level they think the company can afford. Small businesses often use this method, reasoning that the company cannot spend more on advertising than it has. They start with total revenues, deduct operating expenses and capital outlays, and then devote some portion of the remaining funds to advertising.

Unfortunately, this method of setting budgets completely ignores the effects of promotion on sales. It tends to place promotion last among spending priorities, even in situations in which advertising is critical to the firm’s success. It leads to an uncertain annual promotion budget, which makes long-range market planning difficult. Although the affordable method can result in overspending on advertising, it more often results in underspending.

Other companies use the percentage-of-sales method, ­setting their promotion budget at a certain percentage of ­current or forecasted sales. Or they budget a percentage of the unit sales price. The percentage-of-sales method is simple to use and helps management think about the relationships between promotion spending, selling price, and profit per unit.

Despite these claimed advantages, however, the percentage-of-sales method has little to justify it. It wrongly views sales as the cause of promotion rather than as the result. Although studies have found a positive correlation between promotional spending and brand strength, this relationship often turns out to be effect and cause, not cause and effect. Stronger brands with higher sales can afford the biggest ad budgets.

Thus, the percentage-of-sales budget is based on the availability of funds rather than on opportunities. It may prevent the increased spending sometimes needed to turn around falling sales. Because the budget varies with year-to-year sales, long-range planning is difficult. Finally, the method does not provide any basis for choosing a specific percentage, except what has been done in the past or what competitors are doing.

Still other companies use the competitive-parity method, setting their promotion budgets to match competitors’ outlays. They monitor competitors’ ­advertising or get industry promotion spending ­estimates from publications or trade associations and then set their budgets based on the industry average.

Two arguments support this method. First, competitors’ budgets represent the collective wisdom of the industry. Second, spending what competitors spend helps prevent promotion wars. Unfortunately, neither argument is valid. There are no grounds for believing that the competition has a better idea of what a company should be spending on promotion than does the company itself. Companies differ greatly, and each has its own special promotion needs. Finally, there is no evidence that budgets based on competitive parity prevent promotion wars.

The most logical budget-setting method is the objective-and-task method, whereby the company sets its promotion budget based on what it wants to accomplish with promotion. This budgeting method entails (1) defining specific promotion objectives, (2) determining the tasks needed to achieve these objectives, and (3) estimating the costs of ­performing these tasks. The sum of these costs is the proposed promotion budget.

The advantage of the objective-and-task method is that it forces management to spell out its assumptions about the relationship between dollars spent and promotion results. But it is also the most difficult method to use. Often, it is hard to figure out which specific tasks will achieve the stated objectives. For example, suppose Samsung wants a 95-­percent-awareness level for its latest smartphone model during the six-month introductory period. What specific advertising messages, marketing content, and media schedules should Samsung use to attain this objective? How much would this content and media cost? Samsung management must consider such questions, even though they are hard to answer.

Each promotion tool has unique characteristics and costs. Marketers must understand these characteristics in shaping the promotion mix.

Advertising

Advertising can reach masses of geographically dispersed buyers at a low cost per exposure, and it enables the seller to repeat a message many times. Television advertising can reach huge audiences. For example, more than 111 million Americans watched the most recent Super Bowl, and as many as 18 million avid fans tuned in each week for the latest season of NCIS. What’s more, a popular TV ad’s reach can be extended through online and social media. For example, consider the commercial for Supercell’s popular mobile game “Clash of Clans: Revenge” starring Liam Neeson, which aired during Super Bowl XLIX. In addition to the more than 100-plus million TV viewers, it became the most-viewed Super Bowl ad on YouTube for the year, capturing a stunning 82 million YouTube views by year’s end. Thus, for companies that want to reach a mass audience, TV is the place to be.15

Beyond its reach, large-scale advertising says something positive about the seller’s size, popularity, and success. Because of advertising’s public nature, consumers tend to view advertised products as more legitimate. Advertising is also very expressive; it allows the company to dramatize its products through the artful use of visuals, print, sound, and color. On the one hand, advertising can be used to build up a long-term image for a product (such as Coca-Cola ads). On the other hand, advertising can trigger quick sales (as when Kohl’s advertises weekend specials).

Advertising also has some shortcomings. Although it reaches many people quickly, mass-media advertising is impersonal and lacks the direct persuasiveness of company salespeople. For the most part, advertising can carry on only a one-way communication with an audience, and the audience does not feel that it has to pay attention or respond. In addition, advertising can be very costly. Although some advertising forms—such as newspaper, radio, or online advertising—can be done on smaller budgets, other forms, such as network TV advertising, require very large budgets. For example, the one-minute “Clash of Clans: Revenge” Super Bowl ad cost $9 million for media time alone, not counting the costs of producing the ad. That’s $150,000 per tick of the clock.

Marketers can choose from two basic promotion mix strategies: push promotion or pull promotion. Figure 14.4 contrasts the two strategies. The relative emphasis given to the specific promotion tools differs for push and pull strategies. A push strategy involves “pushing” the product through marketing channels to final consumers. The producer directs its marketing activities (primarily personal selling and trade promotion) toward channel members to induce them to carry the product and promote it to final consumers. For example, John Deere does very little promoting of its lawn mowers, garden tractors, and other residential consumer products to final consumers. Instead, John Deere’s sales force works with Lowe’s, The Home Depot, independent dealers, and other channel members, who in turn push John Deere products to final consumers.

Figure 14.4

Push versus Pull Promotion Strategy

Using a pull strategy, the producer directs its marketing activities (primarily advertising, consumer promotion, and direct and digital media) toward final consumers to induce them to buy the product. For example, Unilever promotes its Axe grooming products directly to its young male target market using TV and print ads, web and social media brand sites, and other channels. If the pull strategy is effective, consumers will then demand the brand from retailers such as CVS, Walgreens, or Walmart, which will in turn demand it from Unilever. Thus, under a pull strategy, consumer demand “pulls” the product through the channels.

Some industrial-goods companies use only push strategies; likewise, some direct marketing companies use only pull strategies. However, most large companies use some combination of both. For example, Unilever spends $8 billion worldwide each year on consumer marketing and sales promotions to create brand preference and pull customers into stores that carry its products.17 At the same time, it uses its own and distributors’ sales forces and trade promotions to push its brands through the channels so that they will be available on store shelves when consumers come calling.

Companies consider many factors when designing their promotion mix strategies, including the type of product and market. For example, the importance of different promotion tools varies between consumer and business markets. Business-to-consumer companies usually pull more, putting more of their funds into advertising, followed by sales promotion, personal selling, and then public relations. In contrast, business-to-business marketers tend to push more, putting more of their funds into personal selling, followed by sales promotion, advertising, and public relations.

By law, companies must avoid false or deceptive advertising. Advertisers must not make false claims, such as suggesting that a product cures something when it does not. They must avoid ads that have the capacity to deceive, even though no one actually may be deceived. An automobile cannot be advertised as getting 32 miles per gallon unless it does so under typical conditions, and diet bread cannot be advertised as having fewer calories simply because its slices are thinner.

Sellers must avoid bait-and-switch advertising that attracts buyers under false pretenses. For example, a large retailer advertised a sewing machine at $179. However, when consumers tried to buy the advertised machine, the seller downplayed its features, placed faulty machines on showroom floors, understated the machine’s performance, and took other actions in an attempt to switch buyers to a more expensive machine. Such actions are both unethical and illegal.

A company’s trade promotion activities also are closely regulated. For example, under the Robinson-Patman Act, sellers cannot favor certain customers through their use of trade promotions. They must make promotional allowances and services available to all resellers on proportionately equal terms.

Beyond simply avoiding legal pitfalls, such as deceptive or bait-and-switch advertising, companies can use advertising and other forms of promotion to encourage and promote socially responsible programs, actions, and ideas. Companies in almost every industry now promote a wide range of social and environmental causes related to their brands (see Real Marketing 14.2). For example, Google recently launched a $50 million “Made with Code” marketing and advertising campaign that encourages young girls to pursue science and technology careers. The company found that 74 percent of middle school girls express interest in science, technology, engineering, and math (STEM), but by high school, less than 1 percent of girls plan to major in computer science. Through ads, dedicated digital and social media sites, events, and partnerships with not-for-profit organizations, Google’s campaign promotes the idea that the things young girls love, from their smartphone apps to fashions to their favorite movies, are “made with code.” “Simply put, code is a tool that lets you write your story with technology,” says Google. “Girls start out with a love of science and technology, but lose it somewhere along the way. Let’s help encourage that passion.”18

A company’s salespeople must follow the rules of “fair competition.” Most states have enacted deceptive sales acts that spell out what is not allowed. For example, salespeople may not lie to consumers or mislead them about the advantages of buying a particular product. To avoid bait-and-switch practices, salespeople’s statements must match advertising claims.

Different rules apply to consumers who are called on at home or who buy at a location that is not the seller’s permanent place of business versus those who go to a store in search of a product. Because people who are called on may be taken by surprise and may be especially vulnerable to high-pressure selling techniques, the Federal Trade Commission (FTC) has adopted a three-day cooling-off rule to give special protection to customers who are not seeking products. Under this rule, customers who agree in their own homes, workplace, dormitory, or facilities rented by the seller on a temporary basis—such as hotel rooms, convention centers, and restaurants—to buy something costing more than $25 have 72 hours in which to cancel a contract or return merchandise and get their money back—no questions asked.

Much personal selling involves business-to-business trade. In selling to businesses, salespeople may not offer bribes to purchasing agents or others who can influence a sale. They may not obtain or use technical or trade secrets of competitors through bribery or industrial espionage. Finally, salespeople must not disparage competitors or competing products by suggesting things that are not true.