Advertising
management
Session 7:Advertising Budget
Term: VI
Session 7:Key Takeaways
Advertising Budget
• Case for vs against
• Theoretical concerns
Top-Down vs. Bottom-Up Budgeting approaches
Top- Down approaches
• Affordable Method
• Arbitrary Allocation
• Percentage of Sales
• Competitive Parity,
• ROI
Bottom-up approaches: Objective-and-task method
Share of Voice effect method.
Establishing and Allocating
the Promotional/ advertising
Budgets
Establishing & Allocating the Promotional Budget
Sponsorship Direct
Underwriting Marketing
Public Group Sales
Relations
Sales Internet
Promotions
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Advertising Budget
Advertising budget is a financial document that
shows the total amount to be spent on
advertising
Translation of an advertising plan into monetary
units
Prepared by the advertising manager in
consultation with the marketing manager
Establishing the Advertising Budget: Case for
vs against
• Case Against • Case For
• Fail to realize the value of • View a rupee spent as
advertising and promotion contributing to additional
• Communications budget sales and market share
as an expense • There are evidences that
• Budget expenses as in tough times, the
cutting into profits. advertising budget should
• In tough times, the be raised
advertising budget is the
first to be cut
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Establishing a Budget: Theoretical issues
Sales Response
Marginal Analysis
Models
Marginal analysis
Source: Belch and Belch, Advertising and Promotion
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Budget Adjustments
Increase
Increase If
If the
the cost
cost is
is less
less than
than the
the
Spending
Spending marginal
marginal return
return
Hold
Hold If
If the
the cost
cost is
is equal
equal to
to the
the
Spending
Spending incremental
incremental return
return
Decrease If
If the
the cost
cost is
is more
more than
than the
the
Decrease incremental
Spending
Spending incremental return
return
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Assumptions for Marginal Analysis
Sales are a Sales are the
direct measure principal
of advertising objective of
and promotions advertising and
promotion
efforts
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Sales Response Models
A. Concave-Downward B. S-Shaped Response
Response Curve Function
Incremental Sales
Incremental Sales
Initial Spending
High Spending
Middle Level
Little Effect
Little Effect
High Effect
Range A Range B Range C
Advertising Expenditures Advertising Expenditures
Source: Belch and Belch, Advertising and Promotion
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Factors Influencing Advertising Budgets
Product Hidden product
life cycle qualities
Product Product
durability price
Purchase
Differentiation frequency
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Top-Down vs. Bottom-Up Budgeting approaches
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Top-Down Budgeting Methods
Affordable
Affordable
Method
Method
Return
Return on
on Arbitrary
Arbitrary
Top
Top
Investment
Investment Allocation
Allocation
Management
Management
Competitive
Competitive Percentage
Percentage
Parity
Parity of
of Sales
Sales
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Affordable method
All you-can-afford method
Firm determines the amount to be spent on the various areas
such as production and operations and then allocates.
What is left is allocated to advertising and promotion.
Arbitrary allocation
Budget is set by management based on
what is felt to be necessary.
Concerns
• No theoretical basis underlies the budgeting process.
• No systematic thinking
• No criteria set
• Based upon intuition or judgment
Percentage of sales
Advertising and promotion budget is based on the sales of product.
Determined by taking either a percentage of
• actual sales, or
• anticipated revenue from sales.
Two method
• Straight percentage of sales
• Percentage of unit cost
Disadvantages
Basic premise on which the budget is established: sales.
Does not allow for changes in strategy either internally or from
competitors.
Difficult to employ for new product introductions.
Decreases in sales will lead to decreases in budgets.
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Competitive parity
Setting budgets on the basis of what competitors spend
Matching the same percentage of sales expenditures as
competitors.
Disadvantages
• Ignores individual company objectives
• Competitors might change method
Return on investment
Advertising and promotions are considered as
investments
Budget appropriation is based on the returns the
company feels it will generate from advertising
Bottom-up approach-
Object-and-task method
Object and Task Method
Isolate
Isolate objectives
objectives
Determine
Determine tasks
tasks required
required
Estimate
Estimate required
required expenditures
expenditures
Monitor
Monitor
Reevaluate
Reevaluate objectives
objectives
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Payout Planning
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Share of Voice Effect
Share of Voice
Decrease–find
Decrease–find aa
High
Competitor’s
Increase
Increase to
to defend
defend
defensible
defensible niche
niche
Attack
Attack with
with large
large Maintain
Maintain modest
modest
SOV
SOV premium spending
spending premium
Low
premium premium
Low High
Your Share of Market
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Organizational Characteristics
• Factors that influence advertising budgets
• The organization’s structure
• Power and politics
• The use of expert opinions
• Characteristics of the decision maker
• Approval and negotiation channels
• Pressure on senior managers to arrive
at the optimal budget
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Suggestive Reading
Chapter 7, Belch: Advertising and Promotion, Sixth Edition, ©
The McGraw−Hill Companies, 2003.
Also refer to :
Chapter 16, Setting media budgets, Fifth edition, Batra, Myers,
and Aaker, Fifth edition.
