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Adcertising Budget Essay

1829 words - 8 pages

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.
 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.

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