1. The Budgeting Decision How Much Can I Spend and How?

2. Role of Economic Theory n Traditional Thought More $ Advertising More $ Incremental Sales n Relationship Shows Diminishing Returns n S-Shaped Curve Reflects the Investment Nature of Advertising and the PLC n Reflects Increasing Returns at Lower Levels of Expenditure

3. Traditional Approaches to Appropriation n Judgmental Approaches Arbitrary Allocation % of Sales All You Can Afford n Data-Oriented Approaches Competitive Parity Objective and Task Experimentation and Testing Modeling and Simulation

4. Arbitrary Allocation n Common Method n Shortcomings Numerous vent for personality and emotion does not consider task at hand little concern for bottom line impact

5. Percentage of Sales n Determination of % of Sales Applied to Past or Forecasted Sales n Percentages Vary by Industry n Common Approach

6. Percentage of Sales n Widely Used for a Number of Reasons Costs viewed as a % of Sales Minimizes Risk of Nonavailability of Funds Competitive Warfare May Be Reduced

7. Percentage of Sales !Problems! n Views Advertising as the Results (Not Cause) of Sales n Focus not on Promotional Job to be Accomplished n Arbitrary Method Substituted for Comprehensive Analysis n Seldom Sufficient unless in a Static Environment

8. All You Can Afford Method n Not Usual to Limit Advertising to Show Satisfactory Profits in a Given Year n Management Spends What Believe Will Not Interfere With Liquidity

9. All You Can Afford Example n Selling Price$ 1.00 n Retailer Margin(30%) -.30 n Wholesaler’s Selling P.70 n Wholesaler’s Margin -.11 n Manufacturer’s P.59 n Manufacturer’s Prod Cost.40 n Revenues - Cost.19 n Specified Profit (6%).06 n Residual.13

10. All You Can Afford n Budget Set by Taking (for example) $.10 x projected Sales of 100,000 units Total Expenditures = $10,000 n What’s the Problem? This Looks Technical! It doesn’t have anything to do with the tasks at hand or your objectives!

11. Data Oriented Approaches n Competitive Parity n Objective and Task n Experimentation and Testing n Computer Simulation and Modeling

12. Competitive Parity n Emulate the Competition n Information Gathered from Annual Reports, IRS information, trade associations n Advantages - competition recognized, adapt to competitive changes n Disadvantages - old info, assume equal effectiveness and objectives, must guess future!

13. Objective and Task : The Way to GO! n No Previous Method Comes Close! n Build-Up Approach to Analysis n Considers Objectives and the Associated Cost with Implementation of Strategy

14. Objective And Task: Advantages n Considers Marginal Costs n Investigates Prioritizing Objectives n Looks at Marginal Returns n Avoids Arbitrary Decisions n Allows for Flexibility and Reconciliation of Divergences

15. Objective and Task: The Steps n Isolation of Objectives Estimate Market Share Considerations Approximate Necessary Spending Levels Set Communication Objectives n Determination of Expenditures Through Build-Up Analysis Advertising and Public Relations Considerations

16. Expenditures Through Build-Up Analysis n Advertising and PR Review Objectives –Frequency vs. Reach –Use of Media and Mix Decisions –Costs of Media Selected –Determination of Promotional Mix n Direct Selling Costs channel cooperation expenses

17. Objective and Task : Completion Steps n Comparison Against Industry Percentage of Sales Guidelines n Comparison Against Projected Percentage of Future Sales n Reconciliation of Divergences n Establishment of Payout Plan n Modifications with Corporate Policies n Specification of When Expenditures Will be Made n Flexibility

18. Objective and Task : Problems? n Management may not know how to accomplish stated objectives or how to assign a dollar value to this n May not be able to prioritize objectives n Effectiveness of management not guaranteed!

19. Experimentation and Testing n Select a test market and introduce a variety of promotional budgets and tactics. n Sales compared across approaches n Advantages can control market factors see what works and doesn’t!

20. Experimentation and Testing n Disadvantages Cost runs high! Representativeness of Test Markets Time Required Tip Hand to the Competition

21. Modeling and Simulation n Mathematically Model the Marketplace n Simulate Experimentation through the Computer Model n Allows to Analyze Changes to the Budget and Strategies and View Impact n Results only as Good as the Model!