ADVERTISING BUDGET: ADVERTISING BUDGET ADVERTISING BUDGET: ADVERTISING BUDGET In developing an Advertising Plan, Objective setting is most important

and may be significantly influenced by the limitations of the budget. Budget decisions are critical as money spent on advertising may mean the difference between success and failure. Budget allocated to advertising is considered as expense rather than an investment Economic Marginal Analysis: Economic Marginal Analysis A firmshould continue to increase the advertising budget for a particular brand or certain geographic market as long as the marginal revenues generated exceed the incremental expenditures. Certain weaknesses that limit its usefulness Focus of Advertising is on communication objectives that contribute towards accomplishing the marketing objectives. Acc to Frank Bass: Acc to Frank Bass There is no more difficult, complex, controversial problem in marketing than measuring the influence of advertising on sales. To determine the impact of Ad expenditures on the accomplishment of communication objectives Advertising is just one of many factors that may influence sales Rarely used as a basis to allocate advertising budget Concave-downward Function: Concave-downward Function S- shaped Response Function: S- shaped Response Function Approaches to Budgeting: Approaches to Budgeting Methods developed through practice and experience Top-down approach and build-up approach to budget setting Top-down Approach: Budgetary amount is set by higher management and passed on to various departments It includes affordable method, Arbitrary allocation,Percentage of sales, Competitive Parity, return on investment Judgemental in approach Budget not linked to objectives and strategies Slide 8: Build-Up approach: It takes into account the compnys advertising objectives and budget is allocated on the basis of what is considered essential in accomplishing the goals It includes: Objective and task method Payout planning method Quantitative models The Affordable Method: The Affordable Method After all the other allocations have been made to cover other relevant company expenditures, whatever is left is allocated to advertising. This is the amount what firm can afford to spend Chances of over and under spernding are high Common among small firms Co. is doing proper allocation to other elements of business, produces good results , Arbitrary Allocation: , Arbitrary Allocation It lacks systematic thinking Method of budget allocation seems to have no theoretical basis Managers believe that some amount should be spent on advertising and pick up a figure as advertising budget Such an approach is used but not recommended Percentage of Sales Method: Percentage of Sales Method Most commonly used method by large and medium sized companies A fixed percentage of last years sales figure is allocated as the budget Projected sales figure of the next year can be taken as base Average sales of last several years On basis of sales unit Percentage figure is industry standard and depends on total sales figure as well Slide 12: POS method will lead to under or overspending. In S shape shaped curve, spending more on advertisoing up to a point will generate incremental sales Less than or more than that will be wasteful No sales hiostories available for new product Decrease in sales decreases the budget st the time when increase in budget is most needed. Not only past sales figures but forecasted sales figures should also be considered Competitive Parity Method: Competitive Parity Method Managers decide budget amounts by matching competitors percentage pf sales allocation