Bottom-Up Budgeting
Total Budget Is Approved by
Top Management
Cost of Activities are Budgeted
Activities to Achieve Objectives
Are Planned
Promotional Objectives Are Set
Bottom-Up Budgeting
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Objective and Task Method
Payout Planning
Quantitative Models
Objective and Task Method
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It looks at the objectives for each activity and
determines the cost of accomplishing each
objectives.
Three steps:
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Defining the communications objectives to be
accomplished
Determining the specific strategies and tasks
need to attain them
Estimating the cost associated with performance
of these strategies and tasks
Objective and Task Method
Establish Objectives
(create awareness of new product among
20 percent of target market)
Determine Specific Tasks
(advertise on market area television and
radio and local newspapers)
Estimate Costs Associated with Tasks
(television, $575,000; radio, $225,000;
newspaper, $175,000)
Objective and Task Method
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The major of advantage of this method is that the
budget is driven by the objectives to be attained.
The major disadvantage of this method is the
difficulty of determining which tasks will be requires
and the costs associated with each.
This method is not as easy to perform or as stable
as some of the methods discussed earlier.
It is especially difficult for new product introduction
(There is no past experience to use as a guide).
Payout Planning
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The first months of a new product’s introduction
typically require heavier-than-normal advertising and
promotion appropriations to stimulate higher levels
of awareness and subsequent trial.
The average share of advertising to sales ratio
necessary to launch a new product successfully is
approximately 1.5~2.0.
This means that a new entry should be spending at
approximately twice the desired market share.
Figure 7-20
Share of Advertising/Sales
Relationship
Share of Advertising/Sales
Relationship
Payout Planning


The basic idea is to project the revenues the
product will generate, as well as the costs it
will incur, over 2 to 3 years.
Based on an expected rate of return, the
payout plan will assist in determining how
much advertising and promotions expenditure
will be necessary when return might be
expected.
Payout Planning
To determine how much to spend,
marketers develop a payout plan that
determines the investment value of the
advertising and promotion appropriation
Example of a three-year payout plan ($ millions)
Product sales
Profit contribution
(@$.50 per case)
Advertising/promotions
Profit (loss)
Cumulative profit (loss)
Year 1
15.0
Year 2
35.50
Year 3
60.75
7.5
15.0
(7.5)
(7.5)
17.75
10.50
7.25
(0.25)
30.38
8.50
21.88
21.63
Quantitative Models
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For the most part, these methods employ
computer simulation models involving
statistical techniques such as multiple
regression analysis to determine the relative
contribution of the advertising budget to sales.
Attempts to apply quantitative models to
budgeting have met with limited success.
Such methods do have merit but may need
more refinement before achieving
widespread success.
Allocating the Budget
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Allocating to IMC elements
Client/agency policies
Market size
Market potential
Market share goals
Economics of scale in advertising
Organizational characteristics
Allocating to IMC Elements
Allocating to IMC Elements
High
Low
Competitor’s
Share of Voice
Share of Voice Effect
Decrease–find a
defensible niche
Increase to defend
Attack with large
SOV premium
Maintain modest
spending premium
Low
High
Your Share of Market