Top Down Approaches

In top down approaches budgetary amount is established (usually at executive level) and then the monies are passed down to the various departments. These budgets are essentially predetermined and have no true theoretical basis.

1. Affordable Method (all-you-can afford method)

Procedure used to set advertising budgets, based on what the advertiser thinks it can afford to spend. This method lacks consideration for the objectives of the advertising and how those objectives can best be met. The task to be performed by the advertising/promotions function is not considered, and likelihood of under or overspending is high, as no guidelines for measuring the effects of various budgets are established.

2. Percentage of Sales Method

Perhaps the most commonly used method for budget setting is the percentage of sales method, in which the advertising and promotions budget is based on sales of the product. Management determines the amount of either (1) Taking a percentage of the sales dollars (2) Assigning a fixed amount of the unit product cost to promotion and multiplying this amount by the number of units sold. Budget is not based on the last years sales. As the market changes, management must factor the effect of these changes on sales into next years forecast rather than relying on past data.

Method 1 : Straight Percentage of Sales 2010 Total dollar sales Straight % of sales at 10% 2011 Advertising budget
Method 2: Percentage of Unit cost 2010 2011 2011 Cost per bottle to manufacturer Unit cost allocated to advertising Forecasted sales 100000 units Advertising Budget (100000*$1)

$10, 00, 000 $ 100000 $100000

$4.00 1.00 $100000

Competitive Parity Method

Competitive-based approach used to determine an advertising budget wherein an advertiser decides advertising dollars to be spent on the basis of competitors' spending. A problem with this method is that not only does it assume that all competitors' marketing objectives are the same but also that it leaves an advertiser subject to the same mistakes the competitor may make. Additionally, information concerning competitive-advertising expenditures is only available after the money has actually been spent; thus the advertiser who uses this method is always functioning on other companies' past results.

Build up Approaches
The major Flaw associated with the topdown methods is that these judgmental approaches lead to predetermined budget appropriation often not linked to objectives and the strategies designed to achieve them.

Objective and Task Method

The objective and task method of budget setting uses a build up approach consisting of three steps: (i) Defining the communication objectives to be achieved. (ii) Determining the specific strategies and tasks needed to attain them. (iii) Estimating the costs associated with performance of these strategies and tasks.
The total budget is based on the accumulation of these costs.

1. Create awareness of new product among 20% of target market. 2. Advertise on market area television and radio stations and in major newspapers. 3. Television advertising: $575000 Radio advertising : $ 225000 Newspaper advertising : $175000