Budgeting
Getting it Right
Chapter 6
Decisions Decisions
• Objectives
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Advertising Budget
Media Selection
Media Strategy
Creative/Message
• Budget  Control tool, planning, accountability
Advertising Budget
• How much money to spend
• Budget distribution across Promotional tactics
• Four Main Methods:
– Percentage of Sales
– Peckham’s Formula
– Competitive Parity
– Objective and Task
Percentage of Sales
A2 = f(S1)
A2 = total advertising dollars for period 2
f = a percentage figure
S1 = sales for period 1 (previous period)
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Using past sales to determine future promotion $$
Doesn’t allow for emergency adjustment
Used to compare spending ratios across companies
Doesn’t consider objectives
Limiting
Percentage of Sales (2)
A2 = f(S2)
A2 = total advertising dollars for period 2
f = a percentage figure
S1 = sales for period 2 (forecast)
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Based on “affected” sales period
Still only based on sales
Good initial base allocation
Doesn’t consider objectives
Peckham’s Formula
• Relationship between sales and advertising $$
• Applicable in certain categories
– Correlation between SOV and SOM
• SOV = (1.5)SOMdn
• Based on 18yrs of sales and advertising data
• Only for new products
– Results cannot be generalized
Competitive Parity
• Ad $$ as a proportion/share of product’s market
share
• Establish a share of the total ad $$ for all
products of the category
– SOV = SOM
• Useful in planning and control
• Provides a yardstick
– Used in stable markets
• Doesn’t apply to all products or categories
• Established brands require less SOV
Objective & Task
• Used by majority of advertisers
• Relates specific tasks to the dollars that will be
spent
• Doesn’t consider relationship between shortterm and long-term effect of promotion
• Requires clear objectives and reliable
estimations of audience response
Other “Methods”
• Historical
– Based on previous year
– Adjust for inflation
– Objectives are irrelevant
• All you can afford
– “whatever is left over”
– Lack of value to promotion
Recent Trends
• Shift in Budget allocations
– Digital media
• Declining in traditional media
• Increasing in digital media
– Cable and Spanish media on the rise
• Increased ROI measurement of brand equity
• Increased accountability
– Measurable results and investment
Facebook Growth Projections
Q1 2012 vs. Q1 2011