SQL Server ':setvar' Error

I am trying to create some script variables in T-SQL as follows:

    /*
    Deployment script for MesProduction_Preloaded_KLM_MesSap
    */

    GO
    SET ANSI_NULLS, ANSI_PADDING, ANSI_WARNINGS, ARITHABORT, CONCAT_NULL_YIELDS_NULL, QUOTED_IDENTIFIER ON;

    SET NUMERIC_ROUNDABORT OFF;


    GO
    :setvar DatabaseName "MesProduction_Preloaded_KLM_MesSap"

However, when I run this, I get an error stating 'Incorrect syntax near ':'. What am I doing wrong?

The :setvar only works in SQL command mode, so you are possibly within normal SQL execution in the management studio and have not swapped to command mode.

This can be done through the user interface in SQL Server Management Studio by going to the "Query" menu, and selecting "SQLCMD mode."

Just enable sqlcmd mode in SQL Server Management Studio as described in following image.