Marketing Promotional Budget Decisions Remember, one of the most difficult marke
ID: 392560 • Letter: M
Question
Marketing Promotional Budget Decisions Remember, one of the most difficult marketing decision facing companies is how much to spend on promotion. Thus, it is not surprising that industries and companies vary considerably in how much they spend on promotion. Promotional expenditures might amount to 30 to 50% of sales in the cosmetics industry and from less than 5% in the industrial sector. There are four common methods that companies use to decide their promotion budgets. They are the affordable method, the percentage-of-sales method, the competitive-parity method and the objective-and-task method. Find a scholarly, peer-reviewed journal article (published within the last 5 years) on a topic of promotion budgets. Cite and summarize the article
Explanation / Answer
Advertisement is a major component of every marketing strategy, as it is a major means of communication between an organisation and the target consumer. Brand as well as product awareness is largely dependent upon advertisement and its effectiveness in communicating with the consumer. The image of the product, as well as organisation, is created in the mind of the customer through advertisement via various media. Effective advertisement results in communicating to the customer all the major value features of any product which will essentially convince the customer to purchase the product or create confidence in the brand and the company. Information presented in an advertisement can mould the brand and product image through optimal advertisement and exposure focussed mainly on target groups. An effective advertisement should therefore be able to achieve, the required goal of connecting with the audience in a manner so as to efficiently convey the core message that the advertisement is made for. As the audience is the target recipient of such a message their absolute engagement is essential for achievement of this goal. Engaging means to have the complete attention of, and ensure the involvement of the target audience, through empathetic and inclusive approach. Engagement of the audience ensures interest and attention for a relatively lengthier time period and not just for the moment. For involvement of the audience it is important that the advertisement create a direct relationship with them by involving them as a part of the advertisement. Given the importance of advertisement in ensuring the success of a product, as well as a brand, it is essential that the process be perfectly planned and strategized to provide optimal results. Advertisement is one of the major input costs incurred for marketing of products. It becomes important to ensure the returns received are maximized, and visible through growth in product sale and customer base. Therefore, it becomes important to understand the frequency of advertisement required which would generate optimal results in the form of sales.
Strategic planning also involves simultaneous budgeting of the advertisement campaign, in a manner that it is highly efficient in extracting maximum benefit through effective exploitation of the market by targeting the right segment resulting in optimal return on investment. Various methods are utilised for taking decisions on budget allocation to advertisement but it is difficult to consider them in isolation as marketing is a process which requires considerable innovation and variation which necessitates utilising special and applicable combinations. Approaches and methods for budgetary decisions on advertisement are:
The affordable approach is the simplest method for budgeting. It is simply allocating the budget on the basis of the resources available with the department for allocation towards advertising expenditure. This budgetary allocation is not strategic as it lacks planning and application of rational thinking for decision making. They are various disadvantages associated with this approach as it may result in a higher or lower percentage than is required and not achieve the desired goal, due to lack of planning, setting up of goals and strategy for achieving them.
The percentage of sales approach consists of allocation of a fixed percentage of sales turnover towards advertisement budget. This results in a direct link between the expenditure and the returns generated. As increase in sales is the major goal for advertisement. For multinational corporations this can prove to be and effective methodology with each market receiving the allocation on the basis of returns generated or the quantum of business. This budget is very easy to justify and convince the management in meeting as it is based on rational decision with support of objective figures and analysis. It implements an inbuilt monitoring and control measure within the budget as it is a percentage of the return, thus remaining within affordable limits. it also provide adequate flexibility as every company in fix the percentage which it is comfortable with allocating on the basis of the profit margin. This approach also has certain disadvantages in that it lays greater emphasis on historical figures and achievements, rather than on forecasting sales figures. This results in an historical rather than futuristic approach and improve a major disadvantage for a product in the growth stage where Rapid increase in sales and marketing may require budgeting with a futuristic outlook, to facilitate exploitation of the growth opportunity. It also does not consider the importance of flexibility in advertisement where declining sales may require increased promotions. Local markets utilise a policy of reducing prices market domination below profit margins may render this method as risky. It Oversimplifies the budgetary allocation and the decision making by ignoring extensive technological tools available for accurate data management and analysis to facilitate right decisions. Message for budgeting by a new organisation with zero sales or for a new product.
The competitive parity approach required the budgetary allocation to be based upon information and analysis of the budgetary allocation of competitors within the market. This requires accurate determination of promotional expenditures of competitors who may have multinational units operating out of various countries making it difficult to acquire accurate information. Especially in the case of unlisted companies the financial accounts may not be available for public inspection, leading the entire decision making to be based upon data which may be inaccurate leading to irrational decisions, substantial documentary evidence. This approach also tends to ignore the fact that every organisation is unique in its goals and mission and has unique market share and customer base along with the life cycle stage of the organisation. Considering this putting all organisations marketing requirements at the same level can lead to erroneous calculations and decisions.
The objective and task approach can be considered to be the optimal approach to budgetary decisions for promotional activities within an organisation. The inherent drawbacks within all other approaches has led organisation to adopt this approach as it oppose them the required flexibility to formulate a unique strategy suitable for their organisation after due consideration to all factors important for the organisation and which impact budgetary decisions for them especially the mission and goals of the organisation both short-term and long-term. This approach requires determination of the objectives related to advertisement process along with the plan for achievement of these objectives through set tasks. Therefore adequate consideration is provided to all factors important for decisions related to advertisement such as details of the external economical situation, the time, product and market. It has an inbuilt cost benefit analysis which ensures that budgetary allocation are related to return on investment with the budget being considered accurate and efficient only when the benefits generated are greater than the costs. However, it is essential that accurate and substantial information on all the factors be available and utilised efficiently for arriving at decisions and allocations.
https://marketing-insider.eu/advertising-budget-decisions/
ADVERTISING BUDGET DECISIONS – SIZE OF THE PROMOTIONAL BUDGET
written by Maximilian Claessens 27th May 2016