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Effective Methods for Setting Advertising Budgets and Objectives

Learn about different methods for setting advertising budgets, such as the Affordable, Percentage-of-Sales, Competitive Parity, and Objective-and-Task methods. Understand the factors related to the success of advertising for new products and how to effectively establish objectives for promotional programs.

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Effective Methods for Setting Advertising Budgets and Objectives

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  1. CHAPTER 8 Establishing Objectives and Budgeting for the promotional program

  2. SETTING THE ADVERTISING BUDGET Factors that should be considered – • Stage in the product life cycle • Market size • Market share • Large number of competitors • Undifferentiated brands • Economies of scale

  3. Methods for Setting Budget 1. The Affordable Method Setting the budget at the level management thinks the company can afford. Advantages Disadvantages • Helpful for smaller firms • Lack of financial problems • Under- or overspending is high • Ignores the effect of promotion on sale • Lack of enough money to get into the market

  4. 2. The Percentage-of-Sales Method Setting the budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales price.

  5. Method 1: Taking a % of the sales (TK.) Total sales Tk. 1,000,000 (current/forecasted) % of sales at 10% Tk. 100,000 Advertising budget for Tk. 100,000 next year

  6. Method 2: A fixed amount of unit cost X the number unit sold • Cost per unit Tk. 4.00 • Unit cost allocated for Tk. 1.00 • advertising • Sales 100,000 units (current/forecasted) • Advertising budget Tk. 100,000 • (100,000 X Tk. 1)

  7. Advantages Disadvantages • Simple, Straightforward & easy to implement • Financially safe • Stable budget • Decreases the budget when sales decrease • Reverses the cause-and-effect relationship between advertising & sales • Prohibit for any changes in strategy, even from competitors • Misappropriation of funds • Difficult to employ for new product introductions

  8. 3. The Competitive Parity Method Setting the budget by matching competitor’s outlays or the competition’s percentage-of-sale expenditure.

  9. Advantages Disadvantages • Brings stability in the market place • Minimizes unusual or unrealistic ad expenditures • Do not consider objectives to accomplished • Ignores the contributions of creative executions and media allocation • Ignores the possible advantages of the firm itself. • Competitors can change their strategies or increase/decrease their expenditures • May not avoid promotional wars

  10. 4. Objective-and-Task Method Setting the budget based on what it wants to accomplish. This method includes 3 steps – Establish objectives Determine specific tasks Estimate costs associated with tasks

  11. Advantages Disadvantages • The budget is driven by the objectives to be attained • Easier for existing product or similar one in the same category • Difficult to determine specific tasks and costs associated with each • Difficult for new product introduction with no track record

  12. FACTORS RELATED TO SUCCESS OF ADVERTISING FOR NEW PRODUCTS • Communicating that something is different about the product • Positioning the brand difference in relation to the product category • Communicating that the product difference is beneficial to consumers • Supporting the idea that something about the product is different and/or beneficial to consumers

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