A DVERTISING B UDGET YWCA, Lecture 8

O RGANIZATION & O BJECTIVES ORGANIZATION’S GOALS & OBJECTIVES OPERATIONS OBJECTIVE FINANCE OBJECTIVE MARKETING OBJECTIVE ADVERTISING OBJECTIVES

A DVERTISING B UDGET Advertising budget is the total amount of money allocated as advertising expense and lists the way this amount is to be allocated. It also shows how this amount will be allocated among different media, sales territories, products, selling activities, etc. It is an estimate of the funds needed for meeting the advertising objectives of the company.

A DVERTISING B UDGET >>Advertising budget is the translation of advertising plan into monetary terms. >>It is prepared by the advertising manager in consultation with marketing manager for a specific period of time. >>It shows the plan of allocation of the available fund to various advertising activity.

M ETHODS OF S ETTING A DVERTISING B UDGET 1. Affordable Method Under this method, advertisers base their advertising budget on what they feel they can afford. Advantage >>Simplicity. Disadvantage >>Due to an uncertain advertising budget making long term plans becomes difficult. >>The available funds may not be enough to meet the firm’s advertising needs. >>The allocated fund might be an unnecessary expenditure

M ETHODS OF S ETTING A DVERTISING B UDGET 2. Percentage of Sales Method In this method a fixed percentage of sales figure is allocated as the advertising budget. This sales figure could be the last year’s sales figure or the average of the sales figures of last few years. This sales figure can also use the projected sales figure. The sales figure can also be represented as a fixed portion of profit per unit sale.

M ETHODS OF S ETTING A DVERTISING B UDGET Advantages & Disadvantages of Percentage of Sales Method Advantage >>Method is simple and easy to understand >>Advertising expenditure is directly related to the sales of the company and hence is not neglected to compensate for other expenditures. Disadvantage >>Here sales determine the advertising expense. Sales is not seen as a result of advertising. >>Depending of advertising budget on sales make long term planning difficult. >>It might be possible that a fall in sales require more advertising but as per this method it would be difficult. The need might be of aggressive advertising.

M ETHODS OF S ETTING A DVERTISING B UDGET Disadvantage >>This method doesn’t provide a logical reason for choosing a certain percentage for determining advertising budget >>It will be difficult to use if the company wants to introduce a new product as the sales figure wont be available. Moreover, a new product requires aggressive advertising. >>It doesn’t take into account the market and competition.

M ETHODS OF S ETTING A DVERTISING B UDGET 3. Competitive Parity Method Under this method the advertising expenditure of the competitors are taken as the guidelines for determining the advertising budget. Advantages >>It considers competition as an important factor. >>Enables the company to keep itself updated about the strategies being used by other companies Disadvantage >>The resources, objectives and strengths are different of different companies. So following the competition might not be a good idea. >>There is no guarantee that what firms are spending in the market is optimal.

M ETHODS OF S ETTING A DVERTISING B UDGET 4. Objective & Task Method Under this method advertising budget is fixed based on the advertising objective to be achieved. This objective is determined after intensive market research. It involves the following steps: A. Task Definition – Define the advertising objective. B. Determine the type of strategy and creativity to be used. C. Type of media to be used D. Estimate the cost of various works E. Determine whether the expected benefits exceeds the incurred cost. F. Whether the company can afford the cost? If not, then go for cost cutting.

A DVERTISING B UDGETING P ROCESS Set the Advertising Objective & Try to Quantify Them Determine the Tasks to be Performed In Order to Achieve Those Objectives Determine the Cost of All Tasks & Activities Prepare the Budget Take Approval from Top Management Allocate the Budget to Different Activities / Territories / Products

THANK YOU