ADVERTISING BUDGET
YWCA, Lecture 8
ORGANIZATION & OBJECTIVES
ORGANIZATION’S
GOALS & OBJECTIVES
OPERATIONS
OBJECTIVE
FINANCE
OBJECTIVE
MARKETING
OBJECTIVE
ADVERTISING
OBJECTIVES
ADVERTISING BUDGET
Advertising budget is the total amount of money allocated as
advertising expense and lists the way this amount is to be
allocated.
It also shows how this amount will be allocated among different
media, sales territories, products, selling activities, etc.
It is an estimate of the funds needed for meeting the advertising
objectives of the company.
ADVERTISING BUDGET
>>Advertising budget is the translation of advertising plan into
monetary terms.
>>It is prepared by the advertising manager in consultation with
marketing manager for a specific period of time.
>>It shows the plan of allocation of the available fund to various
advertising activity.
METHODS OF SETTING ADVERTISING
BUDGET
1. Affordable Method
Under this method, advertisers base their advertising budget on
what they feel they can afford.
Advantage
>>Simplicity.
Disadvantage
>>Due to an uncertain advertising budget making long term
plans becomes difficult.
>>The available funds may not be enough to meet the firm’s
advertising needs.
>>The allocated fund might be an unnecessary expenditure
METHODS OF SETTING ADVERTISING
BUDGET
2. Percentage of Sales Method
In this method a fixed percentage of sales figure is allocated as
the advertising budget.
This sales figure could be the last year’s sales figure or the
average of the sales figures of last few years.
This sales figure can also use the projected sales figure.
The sales figure can also be represented as a fixed portion of
profit per unit sale.
METHODS OF SETTING ADVERTISING
BUDGET
Advantages & Disadvantages of Percentage of Sales Method
Advantage
>>Method is simple and easy to understand
>>Advertising expenditure is directly related to the sales of the
company and hence is not neglected to compensate for other
expenditures.
Disadvantage
>>Here sales determine the advertising expense. Sales is not seen
as a result of advertising.
>>Depending of advertising budget on sales make long term
planning difficult.
>>It might be possible that a fall in sales require more
advertising but as per this method it would be difficult. The need
might be of aggressive advertising.
METHODS OF SETTING ADVERTISING
BUDGET
Disadvantage
>>This method doesn’t provide a logical reason for choosing a
certain percentage for determining advertising budget
>>It will be difficult to use if the company wants to introduce a
new product as the sales figure wont be available. Moreover, a
new product requires aggressive advertising.
>>It doesn’t take into account the market and competition.
METHODS OF SETTING ADVERTISING
BUDGET
3. Competitive Parity Method
Under this method the advertising expenditure of the competitors
are taken as the guidelines for determining the advertising
budget.
Advantages
>>It considers competition as an important factor.
>>Enables the company to keep itself updated about the
strategies being used by other companies
Disadvantage
>>The resources, objectives and strengths are different of
different companies. So following the competition might not be a
good idea.
>>There is no guarantee that what firms are spending in the
market is optimal.
METHODS
BUDGET
OF
SETTING
ADVERTISING
4. Objective & Task Method
Under this method advertising budget is fixed based on the
advertising objective to be achieved. This objective is determined
after intensive market research.
It involves the following steps:
A. Task Definition – Define the advertising objective.
B. Determine the type of strategy and creativity to be used.
C. Type of media to be used
D. Estimate the cost of various works
E. Determine whether the expected benefits exceeds the incurred
cost.
F. Whether the company can afford the cost? If not, then go for
cost cutting.
ADVERTISING BUDGETING PROCESS
Set the Advertising Objective & Try to Quantify Them
Determine the Tasks to be Performed In Order to Achieve Those
Objectives
Determine the Cost of All Tasks & Activities
Prepare the Budget
Take Approval from Top Management
Allocate the Budget to Different Activities / Territories / Products
THANK YOU