Several steps are essential for successful execution of advertising campaigns in financial services. These steps are outlined in Exhibit 5.3 and will be discussed below. We will also discuss and highlight the unique aspects of these steps as they relate to specific financial services. "Ty Kennyfloorin of Advertising Offeerives: The first step is to determine the objectives of the advertising campaign, reflecting the overall marketing strategy of the company. For example, the objective of an advertising campaign might be to generate new policies for an insurance product or to increase the level of consumer awareness of the brand or the company. Recognizing and identifying the exact objective of an ad campaign is critical to accurate assessment of its merits and potential. Examples of popular advertising objectives in financial services are target levels for customer inquiries, new policies signed, and advertising recall. "2) Budger Determination: The next step in the advertising process is to determine the budget required to carry out the ad campaign. Often, the required budget is significantly different From what is available, and may be dictated by orannizational budgetary constmints. For example, the budget available for advertising a particular financial service might be determined based on a percentage of the total premium revenues generated in the prior year. Clearly, an increase in the intensity of an advertising campaign would require higher budget allocations and may call for the abandoning of traditional budget-setting approaches for advertising. The total budget that is required to execute an advertising campaign is a function of the reach and frequency (and hence the proas rating points) necessary to create consumer response and the cost of media used to secure this level of exposure. The associated dollar figure, therefore, needs to have been estimated prior to negotiations with higher levels of management, in order to ensure the availability of sufficient funds for executing an effective advertising campaign. .3) Computing the Referee on Investment (NO): The next step in the advertising process Is to determine the return on investments associated with the advertising campaign. Pour items of Information are needed in order to conduct this estimation, one of which is an estimate of the lifetime value of an acquired customer. The lifetime value of the customer is the total profit that an acquired customer represents to the company. It is quantified as the sum of the profits associated with the stream of transactions that the customer will undertake with the company over the years. In addition, an estimate of the total number of consumers who will be exposed to the advertising campaign is required. An estimate of the percentage of reached consumers who will eventually purchase the advertised financial product or service is also required. This conversion estimate may range from a low of 0 to a high of 1. Advertisements that are more memorable, are run more frequently, or are more relevant to their target audiences are likely to have a greater impact on consumers, resulting in higher conversion levels. Finally, the total dollar expenditure identified in Step 2 is needed in order to compute the return on investment for the ad campaign. With this information at hand, the return on investment can be computed by applying the following formula: RO/ = lifetime value of customer x conversion rate x reach total advertising campaign expenditure To demonsimie the computation of the retum on investment for an advertising campaign, consider the following example, A direct-mail campaign focusing on 40-year-old heads of household in order to sell a $250,000 tenn life insurance policy is being developed, The ad campaign is reaching 200,000 households at a cost of $325,(00 (reach-200,000; ad campaign expenditure $325,000). To determine the lifetime valle of the customer, the management estimates that a new customer will renew her policy for about four years and that a customer will generate profits of approximately $600 (act of all costs and benefit payouts) each year, As a result, the lifetime value of an acquired customer over the four-year time period is estimated at 4x5600 or $2 400. Based on past experiences with such advertising campaigns, the management estimates that 1 in every 1,000 individuals mailed will become a policyholder (conversion rate-0.001). Applying these estimates to the above formula would result in an ROI estimate of 4816. The estimated FOI can then be examined against benchmarks used by the company in the past in order to determine whether the ad campaign should be executed. The ROI computation shown here is a rather simplified approach encompassing many assumptions and more complex mathematical models may be needed to accurately reflect the underlying dynamics of advertising effectiveness within a given business. Clearly, negative return on investment estimates would make the advertising campaign an unlikely prospect for further action.(4) Developing the Contents of the Ad: Once the return on investment computation has shown favorable results, the next step in the advertising process is to develop the contents of the ad, as reflected in its execution style and informational content. In this step, the services of advertising agencies that specialize in producing financial services ads are required. These specialized agencies often also engage the support of legal experts who can determine the compliance of advertising content with existing regulations. Often, testing of ad content using small-scale samples, focus groups, or test markets may be needed. (3) Media Selection, Scheduling and Campaign Execution: The next step in the adver- tising process is to determine the media that will be used. Exhibit 5.4 shows a simplified table of some of the more common forms of media that can be used for different types of financial services, In general, financial services that are more complex and require the communication of detailed information tend to rely on print forms of advertising Television advertising, which capitalizes on multiple sensory inputs, tends to be the most effective although often the most expensive. Once the media for an ad campaign has been determined by the ad agency, a media schedule needs to be developed in order to achieve the original objectives of the ad campaign which had bech identified in step 1. This task is often carried out by the advertising agency that has been hired to carry out the campaign. There are specific media scheduling and campaign execution strategies that are most effective in certain forms of financial services. For example, an effective ad-scheduling tactic is to advertise in pulses, with heavy advertising in one month, reduced advertising the following month, and a retum to high advertising levels in the third month. This tactic tends to result in more sales and higher levels of consumer response than a constant and steady level of ad spending. Interested readers are encouraged to consult an advertising textbook for the details of various advertising campaign execution styles. 2 (6) Measurement. The final step in the advertising process is to assess the impact of the ad campaign through formal market research or examination of company records. It is critical to measure and record sales levels and other advertising responses following an ad campaign in order to determine the financial effects of the invested advertising dollars. Such measures may help fine-tune the advertising strategy of the company and provide estimates for optimizing future advertising campaigns. For direct advertising campaigns, such measures are obtained through the tracking of consumer inquiries following the ad campaign and the use of tracking numbers, which can pinpoint the exact promotional material to which the consumers are reacting, For ads delivered through mass media such as television, radio, and newspapers, the tracking of consumer responses may be considerably more difficult and might require examining aggregate changes in sales for the months following the ad campaign, or the purchase of market research data from specialized research firms