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Advertising budget

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Budget

A budget is a financial or quantitative statement prepared prior to a definite period of time, of the policy to be pursued during that period for the purpose of achieving a given objective. a budget:1. Is a formal statement of estimated income and

Thus

expenditure for a fixed period, generally a year;

2. Is a statement of policies to be followed by the

concern or department during the budget period; therefore, are only estimated.

3. Is prepared in advance. The budget figures,

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Advertising Budget

It is a functional budget setting the goals and objectives in terms of income and expenditure on advertising during a specified period. It translates advertising plan into money. It includes sales goals, product facts marketing information, competitive situation, creative platforms and rough examples of treatment. It sets forth and analysis marketing and advertising strategies, copy and media recommendations for that strategy and plans and schedules. The budget must specify
Financial capabilities of the company Allocation of funds into various specific operations. 5/28/12

Major steps in budget making data and preparation of budget process 1. Collection of
Agency personnel

or the advertising department is responsible for the planning of advertising work. The planning of advertising work is subjected to various information which the research people provide to agency personnel or the advertising department .On the basis of such information, the men concerned get insight for decisions relating with target markets, products, packaging, advertisement copy, new product introductions and media selection first step in preparing the advertising budget.

Determining the size of the future appropriation is the Budget specifics must be established .
5/28/12 Total advertising budget should, then, be allocated

2.

Presentation and approval of the budget

After the budget is developed by the advertising head in

consultation with the agency personnel, it is to be presented before the CEO of the company or VP or manager of marketing department for approval.
CEO or the marketing manager before assigning his

approval on the budget may consult the financial committee and heads of the other concerned or related departments.
These executives may adjust the budget specifics

on the basis of appropriations or refer it to the advertising manager to review it accordingly. the sales forecasts. Since it is directly related to sales, it must be compatible with sales goals.

The final budget should be evaluated in conjunction with

If it is found satisfactory, the chief executive finally

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3.

Budget Execution
The prime task undertaken for the administration of

advertising spending is the purchase of authorized time and space over the media and the agency handles the job for and on behalf of the advertiser. The costs of advertising production such as television commercials are also incurred by the agency.
The advt.manager should be certain that the expenses

are made in accordance with the approved plan and in economical manner.
He has to monitor the expenses and should have

periodic check to determine whether the activities are being carried on smoothly and the funds are being properly used. he should be sure that the budgets have

If there are certain critical changes in the marketing

situation, 5/28/12

4.

Control of Budget
The advertising manager has to see whether actual

advertising expenditure coincides with the budgeted expenditure or not. Both must run parallel if the budget is to serve as a control.
Another responsibility in controlling is to see whether

the amount appropriated for advertising is being used only for the advertising and for any other activity closely associated with it. As advertising is closely related to other business activities such a personal selling,merchandising,sales promotion, packaging, it is often difficult to state clearly which department should bear certain charges.
For ex. should the expenditure incurred on redesigning of

package be charged to production or advertising?

5/28/12 The advertising manager being a trustee of the

Methods of Advertising budget

Top-down approach Top management sets the spending limit Build-up approach Advertising objectives are set Activities necessary to achieve objectives are planned Costs of different advertising elements are budgeted Total advertising budget is approved by top

Advertising budget set5/28/12 within to stay

Top-Down Approaches
1.

Affordable Method
In this method, the firm determines the amount to be

spent in various areas such as production and operations. Then it allocates whats left to advertising & promotion, considering this to be the amount it can afford.
No consideration is given to what is expected of

advertising.

The chances of under or overspending are high. This approach is fairly among small firms. This method is not based on sound decision making

principles.
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2.

Arbitrary Allocation
This method of budget allocation seems to have

no theoretical basis and the budgetary amount is often set by flat.

Budget is determined by management solely on

the basis of what is felt to be necessary.

This method lacks any systematic thinking that

may reflect some relationship with advertising objectives.

Not recommended.

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3.

Percentage of Sales Method

Under this method, the amount to be

appropriated to advertising is arrived at by multiplying the value of past years sales or the projected sales for the budget period with a predetermined percentage. Different percentages may be fixed for different products,territories,market targets or other breakdowns depending upon the way in which sales forecasts have been broken down.

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 Arguments

in favour of this method

This method is simple, workable and relatively safe way

of handling the problem of setting an advertising budget.

The advertising appropriation does not remain fixed. It

fluctuates directly with sales. If past or projected sales are high, the appropriation will naturally be high.
The per unit advertising cost, sales price and profits are

closely correlated and the management considers these factors while preparing the advertising budget.

This

method of allocating advertising funds is more favorable in cases where competing companies in an industry have tested various levels of spending over a period of time and finally settled down to what becomes a customary level.

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 Disadvantages
This method is not scientific because a) Sales revenue under this method is the cause of

advertising expenditure not scientifically.

b) The percentage on sales is also fixed arbitrarily and ) The danger of this method is quite obvious, If we

consider the case where sales are declining. In such a case, the allocation to advertising at a predetermined percentage would also be declined whereas, in fact, the appropriation to advertising expenditure should be higher to arrest the sales decline.
) There are cases

where advertisements fails to 5/28/12 generate sales. In such cases, there is no justification

4.

Return on Investment Method

In this method, advertising expenditure is considered

as an investment rather than expenditure.

This approach takes into account the return one gets

from advertising generally spread over a period of time.

The advertising budget is prepared on the basis of the

increased profits generated by an increase in sales and goodwill through the advertising. because it correlates the sales and the profits generated by advertising.

It is a scientific way of approaching the problem

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5.

Competitive Parity Model.

This traditional approach consider the amount spent by

the competitive firms in the same industry on advertising either on absolute or a relative basis.
It ignores its own promotional objectives and considers

what its competitors are spending on advertising.

Some of the ways are:Appropriate the same total amount of expenditure on

advertising as a major competitor does. sales as a major competitor does.

Appropriate the same percentage of advt.expenditure on Appropriate the same percentage of advt.expenditure on

sales as the average for the entire industry.

Use any of the methods for appropriating advertising
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budget in a particular market taking competitors budget

 Advantages
This method recognizes competition as a key element in

marketing and promotes stable relationship rather than market welfare. So, it is appropriate in industries where competition is rigorous- and the management is supposed to keep itself in line with rivals in order to prosper and even to survive.
It enables the organization to maintain or increase its

share of the market, in accordance with the objectives of the management.

Comparison of budget with that of rivals may act as a

red flag to budgets which are excessive or meager. programmes of competitors

It enables the management to monitor the marketing

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 Criticisms
The management using this approach ties up itself

with the budgets of competitors. This approach usually involves an estimate of industry advertising for the period in question.
The

use of competition as a yardstick for appropriation makes it easy for a firm to ignore the needs for analyzing the realities of its own competitive situation and to visualize the possibility of other and better strategies.

In

this approach, it has been assumed that competitors are always on the right track and the marketing problems and strategies of competitors are the same as that of the company. But it is never true because every unit of industry is unique in its 5/28/12

Build up approach
Objective Payout

and task method methods

planning method

Quantitative

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1.

Objective and Task method

This method is goal oriented. Under

this method, marketing objectives are fixed after extensive market research. The advertising costs of each relevant task such as type of media, frequency of advertising etc are often calculated. The aggregate costs of all these task may be assumed to be the firms advertising budget. each market segment or for each product or for each product segment and then may be aggregated for the firm.

The costs of various tasks may be calculated for

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 Steps

involved in this method

Establishing advertising objectives (create brand awareness among 30% of target market)

Determine specific strategies and tasks (Advertise on national TV network, radio, newspapers)

Estimate associated costs of each task (Media costs:TV,radio newspapers, magazines)

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 Advantages
It has special merit in the introduction of a

new product.
It develops the budget from the ground up

which is the managerial approach. This method does not rely on past sales figures, forecasted sales, what the competition spends, and considers only those factors which are under control
Disadvantages
The whole theory is based on carefully

setting up of advertising objectives, which guide various tasks to be undertaken and the design of advertising appeals and media. If 5/28/12 the objectives are ill-defined, the whole

1.

Pay out planning

It is a useful technique to develop budget when a new

product is introduced.
It is used in conjunction with other budgeting methods to

estimate the value of advertising.

The commitment is to invest heavily

in advertising to achieve increased awareness and product acceptance. product will generate, and the costs it will incur over a period of two or three years. The approach acknowledges the possibility that company profits will decrease in the first year or two. The expected rate of return assists in determining how much advertising expenditure will be needed before the return might be expected.

The basic idea is to develop a projection of revenues the

It cannot account for all the uncontrollable factors such

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 Quantitative

Models

It involve the use of mathematical models and

statistical techniques such as multiple regression analysis to determine the relative contribution of the advertising expenditure to sales. It requires the use of computers.
Expensive & time consuming.

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