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A Typology of Methods for Setting P romotion Budgets And The Great New Debate!

A Typology of Methods for Setting P romotion Budgets And The Great New Debate!. Ted Mitchell. Three Major Approaches. Cost-Based Methods (AKA Forecasted Sales Methods) Competitive-Based Methods (AKA Market Share methods) Customer-Based Methods (AKA Demand-Based Methods).

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A Typology of Methods for Setting P romotion Budgets And The Great New Debate!

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  1. A Typology of Methods for Setting Promotion BudgetsAnd The Great New Debate! Ted Mitchell

  2. Three Major Approaches • Cost-Based Methods • (AKA Forecasted Sales Methods) • Competitive-Based Methods • (AKA Market Share methods) • Customer-Based Methods • (AKA Demand-Based Methods)

  3. 3 Layers of Promotion Budget • 1) Head Office Strategic Task of Allocating Corporate Budget to SBUs/Markets • 2) SBU Strategic Tasks of • a) Choosing the Budget for the Period • b) Making Incremental Changes • 3) SBU Tactical Tasks of Allocating SBU Budget between the Push and the Pull, choosing among the media, etc

  4. Two Types of Budget Problems • 1) Head Office Strategic Task of Allocating Corporate Budget to SBUs/Markets • 2) SBU Strategic Tasks of • a) Choosing the Budget for the Period • b) Making Incremental Changes • 3) SBU Tactical Tasks of Allocating SBU Budget between the Push and the Pull, choosing among the media, etc

  5. Two Types of Budget Problems • 1) SBU Strategic Tasks of • a) Choosing the Budget for the Period • b) Making Incremental Changes • 2) Allocating Budget at the Business Level and the Corporate level

  6. Two Business Level or SBU Type Applications • 1) Setting the total promotion budget for a planning period or for a specific project or task • 2) Making Incremental Changes to an existing budget for improving performance

  7. Budget AllocationProblems Strategic and Tactical levels • Using ‘Return on Investment’ as the metric for giving more to one and less to anotherSBU A versus SBU BBrand A versus Brand BPush Plan A versus Pull Plan BDirect mail plan A versus Direct mail plan B • The Winner is the one with the Highest Return on Investment

  8. Strategic and Tactical Problems of Budget Allocation • Using ‘Return on Investment’ • First constraint is The budget limit or cut-off“We have a maximum budget of $490,000” • Second Constraintis The investment opportunities are lumpy and finite“We have to choose between Plan A and B”

  9. The NO Problem Decision Allocating Budget Between Programs or Plans

  10. The NO Problem Decision Allocating Budget Between Programs or Plans

  11. SBU Problem of Allocating Budget Between Programs or Plans

  12. SBU Problem of Allocating Budget Between Programs or Plans

  13. SBU Problem of Allocating Budget Between Programs or Plans

  14. A 12% return on the additional $200,000 is below the cut-off of 20% • Use the $200,000 in the bank and make an ROI of 20% which is $40,0000 • Add it to the less profitable Direct mail and your profit goes to $120,000 for Direct #1

  15. BUT!!!!! • Doesn’t the Increase in Sales, Revenues, Market Share, Gross Profits count for anything

  16. Welcome to the Debate! • The Most Important Debate in The History of Marketing!

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