Advertisement Budget Aravind.TS LEAD College of Management
Why Ad’mt Budget ? Many companies are spending a lot of money on sales promotion than on media advertising. The budget allocation depends on number of factors including• the campaign,• the market• competitive situation, and• the brand’s stage in its life cycle.
BUDGET A budget is generally a list of all plannedexpenses and revenues. It is a plan for savingand spending. In other terms, a budget is anorganizational plan stated in monetary terms.
The purpose of budgeting is to:• Provide a forecast of revenues and expenditures• Enable the actual financial operation of the business to be measured against the forecast.
Establishing the BudgetThe size of firms advertising and promotionsbudget can vary from a few thousand dollarsto more than a billion.
• When the companies like Ford, Procter & Gamble and General motors spend over 2 billion dollars per year to promote their product, they expect to accomplish their objective
• . One of the most crucial decision facing the marketing manager is how much to spend on the promotional effort.
Theoretical issues in budget setting1. Marginal analysis2. Sales promotion model a. The concave-downward function. b. The S-shaped response function.
Marginal analysis As the as advertising/promotional efforts increase, sales and gross margins also increases to a point Profits are the difference between gross margin and promotional expenditure. The optimal expenditure level is the point where marginal cost equals the marginal revenue they generate.Profit = gross margin – promotional expenditure
Assumptions• Sales are direct result of the advertising and promotional expenditures and this effect can be measured.• Advertising and promotion are solely responsible for sale.
Sales Response modelsConcave –downward function:-• It states that as the amount of advertising increases, its incremental value decreases. According to this model the effect of advertising quickly diminish.Budgeting under this model suggest that fewer advertising dollars may be needed to create the optimal influence on sales.
S-shape response curve This advertising model suggest a smalladvertising budget is likely to have no impactbeyond the sales that may have beengenerated through other means.
Budgeting approaches• Top – down approaches• Bottom –up approaches
Top down budgeting• Top management sets the spending limit.• Promotion budget set to stay with in spending limit
Top-down methods• Affordable method• Arbitrary allocation• Percentage of sales• Competitive parity• ROI
Bottom- up budgeting• Promotion objectives are set• Activities needed to achieve objectives are planned• Costs of promotion activities are budgeted• Total promotion budget is approved by top management
Bottom – up methods• Quantitative models• Objectives and task method
Factor affecting the budget allocation• The extent to which risk taking is tolerated• Managerial judgment• Use of quantitative tools• Brand differentiation stratergy• Brand equity
THE END … is not good change the budgetWhen times get tough, the advertising andpromotional budget is the first to be cut, eventhough there is strong evidence that exactlythe opposite should occur. A new budget isformulated every year, each time a newproduct is introduced, or when either internalor external factors necessitate a change tomaintain competitiveness.
“Budget Means planning the future expense . so plan(Budget) your futureand live frugally(if it gives good to you)”