Definition of 'Advertising Budget'
An estimation of a company's promotional expenditures over a period of time. An advertising budget is the money a company is willing to set aside to accomplish its marketing objectives. When creating the advertising budget, a company must weigh the trade-offs between spending one additional advertising dollar with the amount of revenue that dollar will bring in as revenue.
An advertising budget reflects the importance given to the function of advertising within a company. The budgeting process is the responsibility of the top management along with the marketing manager.The advertising budget is both a planning ...view middle of the document...
This draft budget then becomes the basis of discussion between the marketing manager and advertising manager and sometimes, even the advertising agency (especially when the agency has a long term relationship with the company. This result in final budget plan that is then recommended to the top management for approval. Though this is the most scientific process of arriving at the advertising budget, it is sometimes not followed, especially by small advertisers. In such circumstances the top management may decide upon the amount to be spent (budget appropriation) and the advertising manager will then plan how to allocate this sum between different expenditure heads.
METHODS OF SETTING THE ADVERTISING BUDGET
One of the most difficult tasks facing advertisers and ad agencies is the decision on the optimum money to be spent on advertising. Advertisers want to minimize expenditure and maximize the returns. Though advertising expenditure is considered to be an investment, its utilization has to be intelligent and profitable.Though there are several accepted methods of arriving at the budget, the individual brand budget will depend upon several factors such as profitability, marketing objective and competitor’s position. The various methods, which are used, for setting advertising budgets are:
1. Percentage of sales method
2. Unit of sales method
3. Task and objective method
4. The competitive parity method
5. Brand history method
6. All you can afford method
7. The break even method
8. The quantitative method
9. Share of voice method
Each of these methods has certain advantages and disadvantages. In reality, a combination of these methods will be used.
1. PERCENTAGE OF SALES METHOD::The percentage of sales method is the most widely used widely used method of setting the appropriation, although it has been criticized by many. The percentage is based on the past years’ sales or on estimated sales for the coming year or on some combination of these two. This is simplest method, as it requires little decision making. Many companies in India use this method to arrive at a tentative budget appropriation. But this method suffers from a basic drawback in that it does not take into account any specific need of the market situation. Moreover, when past sales are used to arrive at the current year’s budget, the figure may have more historical value rather than current utility. Advertising leads to sales and the amount of advertising expenditure depends upon the sales target and therefore, when the percentage of future sales is used the estimates are more realistic.
In conclusion one can say that this method is not appropriate as market situations change rapidly and past sales alone are not an effective indicator of the company’s communication needs.
2. UNIT OF SALES...