4.2.2 Promotion and Sales Budgets

Promotion and sales budgets affect product appeal. See 3.2 Estimating the Customer Survey Score for more information.

Promotion

Each product's promotion budget determines its level of awareness. A product's awareness percentage reflects the number of customers who know about the product. 50% awareness indicates half of the potential customers know it exists. From one year to the next, a third of those who knew about a product forget about it.

Last Year's Awareness - (33% * Last Year's Awareness) = Starting Awareness

If a product ended last year with an awareness of 50%, this year it will start with an awareness of approximately 33%. This year's promotion budget would build from a starting awareness of 33%.

Starting Awareness + Additional Awareness From Figure = New Awareness

Figure 4.2 indicates a $1,500,000 promotion budget would add 36% to the starting awareness, for a total awareness of 69% (33 + 36 = 69).

Figure 4.2 indicates a $3,000,000 budget would add 50% to the starting awareness, only 14% more than the $1,500,000 expenditure (33 + 50 = 83). This is because further expenditures tend to reach customers who already know about the product. Once your product achieves 100% awareness, you can scale back the product's promotion budget to around $1,400,000. This will maintain 100% awareness year after year.

New products are newsworthy events. The buzz creates 25% awareness at no cost. The 25% is added to any additional awareness you create with your promotion budget.

Sales

Each product's sales budget contributes to segment accessibility. A segment's accessibility percentage indicates the number of customers who can easily interact with your company– salespeople, customer support , delivery, etc. Like awareness, if your sales budgets drop to zero, you lose one third of your accessibility each year. Unlike awareness, accessibility applies to the segment, not the product. If your product exits a segment, it leaves the old accessibility behind. When it enters a different segment, it inherits that segment's accessibility.

If you have two or more products that meet a segment's fine cut criteria, the sales budget for each product contributes to that segment's accessibility percentage. This has two important implications:

1. The more products you have in the segment's fine cut, the stronger your distribution channels, support systems, etc. This is because each product's sales budget contributes to the segment's accessibility.
2. Achieving 100% accessibility is difficult. Companies must have at least two products in the segment's fine cut. Each product experiences diminishing returns at a sales budget of $3,000,000. Diminishing returns for the overall segment are not reached until the budgets total $4,500,000 (for example, two products with sales budgets of $2,250,000 each). Once 100% accessibility is reached, you can scale back to around $3,300,000 to maintain 100%.

Sales budgets are less effective when products are not completely positioned in the fine cut circle, when prices rise above segment guidelines or when MTBFs fall below segment guidelines.

Think of awareness and accessibility as “before” and “after” the sale. The promotion budget drives awareness, which persuades the customer to look at your product. The sales budget drives accessibility, which governs everything during and after the sale. The promotion budget is spent on advertising and public relations. The sales budget is spent on distribution, order entry, customer service, etc. Awareness and accessibility go hand and hand in making the sale. The former is about encouraging the customer to choose your product; the latter about closing the deal via your salespeople and distribution channels.

4.2.3 Sales Forecasting

Accurate sales forecasting is a key element to company success. Manufacturing too many units results in higher inventory carrying costs. Manufacturing too few units results in stock outs and lost sales opportunities, which can cost even more. See 8 Forecasting.