In this presentation, we will understand the scope of promotional spending, to measure and evaluate such spending, in details. To know more about Welingkar School’s Distance Learning Program and courses offered, visit: http://www.welingkaronline.org/distance-learning/online-mba.html

1. Learning Objectives
Understand
What is meant by and the scope of
promotional spendings.
To set some standards to measure and
evaluate such spendings.
To be in a position to question the logic of
promotional expenditure.
Chapter Nine Evaluation of Promotional Spends 1

2. Structure
9.1 Introduction.
9.2 Advertising.
9.3 Sales Promotion.
9.4 Summary
Chapter Nine Evaluation of Promotional Spends 2

3. 9.1 Introduction
To promote and maintain market share of products sold or to
be sold, it is necessary for the organization to spend money
on advertising and sales promotion.
To ensure that funds applied on these activities are fruitfully
spent, it is necessary that these expenses are periodically
evaluated.
This evaluation will be realistic if good standards are set up to
measure and evaluate the activities and amounts spent on
them.
Chapter Nine Evaluation of Promotional Spends 3

4. 9.2 Advertising
Promotional spending can be in two distinct areas. The first
one is advertising. By definition advertising is any form of paid
mass communication. Advertising by its nature is a one way
communication and hence lacks the element of engaging
some one in two way interaction.
Advertising carries tasks like
Create awareness in its offerings by inviting attention of
the target group.
Create interest in the group
Convert it into a desire and
Ultimately make the group to act by making a sale.
This is known as AIDA model of advertising.
Chapter Nine Evaluation of Promotional Spends 4

5. 9.2 Advertising
Several alternatives are available while choosing medium for
advertising. They range from Radio / TV / Cinema to
stationary outdoor media like hoardings, bill boards etc. One
can have mobile adaptations in the form of bus bodies, taxi
sides or mobile hoardings.
Other important media is the print. – extending from lay press
to magazines , hand bills to mailers.
Today electronic media is most popular.
Selection of appropriate medium depends on the objective of
advertising and nature of the product. If the objective is to
create quick awareness electronic media serves the purpose.
Chapter Nine Evaluation of Promotional Spends 5

6. 9.2 Advertising
Not so if intricate features [ of a computer] are to be explained
to the target audience. Here print medium is advocated.
Whatever the medium, ultimate goal of several tasks that
advertising performs is to make a sale.
It is not easy to decide whether amounts expended on
advertising are resulting in additional sales, often it is not
known if the advertising has reached the target group.
One model termed Return on Promotional Investment is used
by marketer to indicate which products amongst a portfolio of
products respond to advertising. Increase in spends on each
product in a year, here, is compared with their incremental
sales.
Chapter Nine Evaluation of Promotional Spends 6

7. 9.2 Advertising
Product Sales Rs Lacs Advtg Spends Rs lacs
2007 2008 -ce 2007 2008 -ce
A 190 220 30 20 30 10
B 100 170 70 20 30 10
C 250 290 40 20 30 10
D 60 76 16 20 30 10
E 300 370 70 20 30 10
Total 900 1126 226 100 150 50
You can see that increase of Rs. 50 lacs in advertising has
resulted in new sales of Rs. 226 lacs , a 4.52 fold increase .
Increase in B & E is significant while that in A & D is
disappointing.
Chapter Nine Evaluation of Promotional Spends 7

8. 9.2 Advertising
Just a year’s figures cannot be decisive, hence data over a
longer period has to be reviewed. If such data confirms that
increase in sales of A and D are below average, then we can
conclude that for these two products advertising is not having
desired effects.
If these products are at growth or late introductory stage , it is
necessary to evaluate the advertisement campaign afresh as
to its contents, creative ideas and the medium being used.
However, if the products are at their maturity stage, it may be
prudent to divert spends on other products where returns are
higher.
Chapter Nine Evaluation of Promotional Spends 8

9. 9.3 Sales Promotion
Unlike advertising , where it is difficult to correlate advertising
spends with the growth, or otherwise , of sales, in the case of
sales promotions, the connect can be made very clearly.
Sales promotions are often called below the activities [BTL]
as opposed to advertising which is also called above the line
[ATL] activities. BTL sales promotion activities are focused on
the buyers – end consumers or intermediaries. Hence the
evaluation is direct and measurable.
Promotions directed against intermediaries are known as
“trade loads” as they are used to load retailers shelves.
Promotions focused on consumers are in the form of price off,
extra free quantity or free coupons.
Chapter Nine Evaluation of Promotional Spends 9

10. 9.3 Sales Promotion
Thus sales promotion results in reduction in gross margin of
the promoted product. The formula used to measure effects
of the successful promotion is
Y(g – d) – A > X(g) where
g = gross margin on the product under promotion,
d = dilution or cost that is offered per unit as promotion,
A = amount to be spent on the promotion,
X = the volume before promotion in the same period and
Y = expected [higher] volume planned to be sold during
promotion period.
In case Y(g – d) – A fail to exceed X(g) then the planned
promotion does not recover costs incurred & be dropped.
Chapter Nine Evaluation of Promotional Spends 10

11. 9.4 Summary
A financial model that is used to evaluate the effectiveness of
advertising , called return on promotional investment (ROPI)
, however has a big limitation , in as much as it does not
really show how much sales the advertisement is generating,
but it becomes an indicative model to find out amongst a
portfolio of products which product is responding well to
advertising.
This model can only be used to evaluate , in which particular
product amongst the entire portfolio of products , advertising
is delivering. It will only help in focusing on products where
return is better than others.
Chapter Nine Evaluation of Promotional Spends 11

12. 9.4 Summary
Sales promotions, which are often called as below the line
activities [BTL] as opposed to advertising which also is called
above the line activities [ATL], are very focused on the
buyers, be they the end consumers or intermediaries. Hence
their effect can easily be measured and evaluation can be
done more closely.
Promotions can be directed at intermediaries – which is also
referred to as trade loads because they are used to load
retailers shelves, or they can be directed towards end
consumer, either as price off, or an extra free quantity, or a
redemption coupon or as a free additional item as a gift .
Thus sales promotions result in a dilution in the gross margin
of unit of sale
Chapter Nine Evaluation of Promotional Spends 12

13. This brings us to the end of session nine on “
Evaluation of Promotional Spends”
Next we move to the tenth session to cover
“Evaluation of Channels”
Till then Good Luck!
Chapter Nine Evaluation of Promotional Spends 13

14. “Like” us on Facebook:
p // /
http://www.facebook.com/welearnindia
“Follow” us on Twitter:
http://twitter.com/WeLearnIndia
http://twitter com/WeLearnIndia
Watch informative videos on Youtube:
http://www.youtube.com/WelingkarDLP