3. Advertising budget as an investment
Traditionally money spent on advertising
was considered to be a waste. Also, the
advertising expenditure was considered an
item of current expenditure whose benefits
were assumed to accure in the current
period.
4. Methods of setting advertising budget
1. Affordable method
2. Percentage of sales method
3. Competitive parity method
4. Objective and task method
5. Affordable method
Advertisers base their advertising budget
on what they can afford.
Advantage
Simple method of determining
advertising budget
6. Disadvantages
Leads to an uncertain annual
advertising budget which makes it
difficult to prepare long range plans.
The method is not logical
It fixes advertising budget on the
basis of what the company can afford
instead of considering the advertising
budget.
7. Percentage of sales method
Under the percentage of sales method a
fixed percentage of the sales figure is
allocated as the advertising budget.
Advantage
1. The method is simple and easy
2. It directly related to the funds available.
3. To fix up the budget in terms of
relationship between advertising cost.
8. Disadvantages
1. The method views sales as a factor
determining advertising spending rather
viewing sales.
2. The dependence of advertising budget on
year to year sales fluctuations.
3. The method does not take into account the
competition.
9. Competitive parity method
Under this method the advertising
expenditure of competitors are taken as the
guidelines for setting advertising budget.
Advantage
1. The method recognise competition as
an important factor in determining
advertising budget.
10. 2. It enables a company to monitor the
marketing and advertising strategies
competitors.
3. The collective wisdom of the firms in an
industry generates advertising budget
4. By determining advertising budget as
an account close to the competitor
spending on advertising
11. Disadvantages
1. The reputation resources opportunity and
objectives of various firms differ so much
that following the competitors might not
give a good estimate of what the company
should be spending on advertising
2. The method ignores factor like the level of
production sales estimate and advertising
objectives of a firm .
12. Objective and task method
This is the most logical way of setting
advertising budget wherein the focus is on
the advertising task that is to be achieved.
Objective
1. Task definition
2. Determining the type of strategy
3. Estimating the cost of various elements
4. The budget taking into account financial.
13. Advantage
1. The objective and task method is more
objective and logical as compared to
other method
2. The method takes into account the
business condition and also the
competition in fixing up the advertising
budget.
14. 3. The method does not rely on past sales
figure or projected sales figure.
4. This method is suitable for new products
Disadvantages
1. The method fails to provide a basis for
prioritizing advertising objectives
2. If the objective are not well defined all
efforts would go waste.
3. It is difficult to ascertain the specific
15. Affordable method
Based on what the company can
afford
Percentage of sales
Based on a certain percentage of
current and past or forecasted sales
16. Competitive parity
Based on competitors advertising budget
Objective and task method
Based on determining objective and task
then estimating costs.
Percentage of sales
Based on a certain percentage of current
and past or forecasted sales.
17. Advertising budgeting process
1. Setting advertising objectives
2. Determining the task to be
performed to achieve advertising
objectives
3. Preparing advertising budget
4. Approval of the top management.
5. Allocation of advertising budget
18. Determining the optimum advertising
budget
The optimum level of advertising budget
is determined with the help of marginal
approach to advertising budget.
According to the marginal approach of
advertising is decided on the basis of
marginal cost and marginal revenue of
advertising.
19. Factor influencing the advertising budget
1. The advertising task to be achieved
2. Stage in the product life cycle
3. Market share
4. Competition
5. Frequency of advertising
6. Product differentiation
7. Support from retailers
8. Financial resources
20. 1. The advertising task to beachieved
The advertising spending depends on the
advertising task that a marketers is trying
to achieve
.2 stage in the product life cycle
The introductory phase of a product life
cycle requires heavy spending to create
brand awareness and generate trial
purchase.
21. 3. Market share
High market share brands usually require
less advertising expenditure as a
percentage of sales to maintain market
share.
4. Support from retailers
The lesser the support from retailers the
greater the need to advertise
22. 5. Financial resources
The level of advertising must be adapted
to the availability of funds.
6. Product differentiation
The more similar the product to the
competitor product the greater the need to
invest in brand differentiation through
advertising.
