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Bottom-Up Budgeting

Total Budget Is Approved by


Top Management
Cost of Activities are Budgeted
Activities to Achieve Objectives
Are Planned
Promotional Objectives Are Set

Bottom-Up Budgeting
Objective

and Task Method


Payout Planning
Quantitative Models

Objective and Task Method


It

looks at the objectives for each activity and


determines the cost of accomplishing each
objectives.
Three steps:

Defining the communications objectives to be


accomplished
Determining the specific strategies and tasks
need to attain them
Estimating the cost associated with performance
of these strategies and tasks

Objective and Task Method


Establish
EstablishObjectives
Objectives
(create
(createawareness
awarenessof
ofnew
new product
productamong
among
20
20percent
percent of
of target
targetmarket)
market)
Determine
DetermineSpecific
SpecificTasks
Tasks
(advertise
(advertiseon
onmarket
marketarea
area television
televisionand
and
radio
radioand
andlocal
localnewspapers)
newspapers)
Estimate
EstimateCosts
CostsAssociated
Associated with
with Tasks
Tasks
(television,
(television,$575,000;
$575,000; radio,
radio, $225,000;
$225,000;
newspaper,
newspaper,$175,000)
$175,000)

Objective and Task Method

The major of advantage of this method is that the


budget is driven by the objectives to be attained.
The major disadvantage of this method is the
difficulty of determining which tasks will be requires
and the costs associated with each.
This method is not as easy to perform or as stable
as some of the methods discussed earlier.
It is especially difficult for new product introduction
(There is no past experience to use as a guide).

Payout Planning

The first months of a new products introduction


typically require heavier-than-normal advertising and
promotion appropriations to stimulate higher levels
of awareness and subsequent trial.
The average share of advertising to sales ratio
necessary to launch a new product successfully is
approximately 1.5~2.0.
This means that a new entry should be spending at
approximately twice the desired market share.
Figure 7-20

Share of Advertising/Sales
Relationship

Share of Advertising/Sales
Relationship

Payout Planning
The

basic idea is to project the revenues the


product will generate, as well as the costs it
will incur, over 2 to 3 years.
Based on an expected rate of return, the
payout plan will assist in determining how
much advertising and promotions expenditure
will be necessary when return might be
expected.

Payout Planning
To determine how much to spend,
marketers develop a payout plan that
determines the investment value of the
advertising and promotion appropriation
Example of a three-year payout plan ($ millions)

Product sales
Profit contribution
(@$.50 per case)
Advertising/promotions
Profit (loss)
Cumulative profit (loss)

Year 1
15.0

Year 2
35.50

Year 3
60.75

7.5
15.0
(7.5)
(7.5)

17.75
10.50
7.25
(0.25)

30.38
8.50
21.88
21.63

Quantitative Models
For the most part, these methods employ
computer simulation models involving
statistical techniques such as multiple
regression analysis to determine the relative
contribution of the advertising budget to sales.
Attempts to apply quantitative models to
budgeting have met with limited success.
Such methods do have merit but may need
more refinement before achieving widespread
success.

Allocating the Budget


Allocating

to IMC elements
Client/agency policies
Market size
Market potential
Market share goals
Economics of scale in advertising
Organizational characteristics

Allocating to IMC Elements

Allocating to IMC Elements

High
Low

Competitors
Share of Voice

Share of Voice Effect


Decreasefind
Decreasefind aa
defensible
defensible niche
niche

Increase
Increase to
to defend
defend

Attack
Attack with
with large
large
SOV
SOV premium
premium

Maintain
Maintain modest
modest
spending
spending premium
premium

Low

High
Your Share of Market

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