1.1.

ADVERTISING BUDGET
1.1.1. Introduction
Budget is quantitative expression of future plan of activities. It is a future plan of activities expressed in terms of currency/rupees. It is prepared for a fixed period of time. Advertising budget is a financial document that shows the total amount to be spent on advertising and lists the way this amount is to be allocated. It is a translation of advertising plan into money to be spent on advertising. It is an estimation of total amount to be spent on advertising during a given period of time for achieving marketing objectives. It involves allocation of a portion of total marketing resources to advertising functions of a firm. An advertising budget shows how much amount is to be spent on advertising and how this amount will be allocated among different media sales territories products selling!activities etc. It states the proposed advertising expenditure and serves as a decision!making tool for the management while allocating available funds to the various advertising functions and related activities of the company. Advertising budget and its process is similar with the Sales Promotion budget and Integrated Marketing Communication IMC! budget. All three terms can be used interchangeably also due to close similarity. Advertising budget is prepared by Advertising "anager in consultation with "arketing "anager of the company. But in small business organi#ations which do not have separate advertising department the responsibility of preparing ad!budget lies on top management or "arketing "anager. According to the Institute of Cost and work Accountant "ondon $A budget is a financial or quantitative statement prepare prior to a definite period of time% of the policy to be persuade during that period for the purpose of achieving a given objective&.

1.1.#.

$eatures of Advertising %udget

'he features of advertising budget are as follows( )* Advertising budget is a financial statement expressed in monetary terms +* It is for a specific future period. It is prepared prior to the budget period during which it will operate ,* It is prepared by Advertising "anager. It is approved by top management for its implementation -* It shows the plan of allocation of available funds to various advertising activities .* It affects the selection of media selection of advertising agency and selection of message source /model for advertisement* 0* Its si#e depends on various internal and external factors and 1* It is a limiting factor which determines the si#e of advertising campaign.

1.1.&. Advertising %udget as a Concept of Investment

Advertising budget is assigned to build the image and reputation of the organi#ation. 'he achievement of the budget is observed over a long period. 2ome of the expenditure on advertising attracts customers immediately% they buy the product when they listen to or view the advertising message. 'his expenditure is known as revenue expenditure. 2ome expenditure is incurred on building the image and reputation. 'he effects of advertising are reali#ed gradually over a long period. 'his expenditure is capital expenditure or investment. 'he expenditure on advertising is accepted as revenue expenditure by the income!tax authorities. 'he marketing manager is authori#ed to control and spend the money assigned to him for advertising purpose. Advertising expenditure is a capital investment when it is incurred to build the image goodwill and reputation of product and company% and this results in a gradual increase in the sales although the expenditure is considered as revenue expenditure in the accounting entry. It is an outlay or expenditure made today to achieve benefits in future. 'his expenditure is known as capital investment although it is assigned under the revenue budget but it is not accepted as a capital budget.

1.1.'. $actors Influencing the Si(e of the Advertising %udget

3ollowing factors affect the si#e of advertising budget(

$actors Influencing the Si(e of the Advertising %udget 5bjectives to be Attained >overage 9xpectations <roduct >lass <revailing 9conomic >onditions Age of the >ompany 2i#e of the >ompany 3unds Available >ompetitive Activities Approach to Advertising 2tage in the <roduct!life >ycle

)* )b*ectives to be Attained+ 4ow much the company is going to spend is determined by the objectives to be

attained. 5bjectives act as the sheet anchor and the standards for advertising performance. 'hese objectives are 6 bringing about increase in sales introduction of new products supporting sales force reaching inaccessible consumers entering a new market improving dealer relations expanding industry7s sales building up goodwill building a brand preference counter acting competition dispelling the likely misunderstandings and so on. It is a particular sales objective or the set of objectives that shapes the advertising budget.
+* Coverage ,-pectations+ Advertising coverage implies the number of persons to be reached. It is the

question of reaching a target audience through different media and media vehicles. 'he extent of coverage is influenced very much by the nature of the market enjoyed by the products.
,* Product Class+ 'alking of only consumer goods these have been classified into three categories namely

convenience shopping and specialty. In case of convenience goods they require a large advertising expenditure because of their intensive distribution and heavy dependence on mass advertising to sell in advance to the prospects before they shop. 5n the other hand the fashion goods require less advertising as the buyers can judge the qualities of these products themselves in person while they hop from shop to shop. 2ervices goods such as automobiles fridges washing machines '.8 sets cooking ranges kitchen!wares and the like warrant heavy doses of advertising and personal selling efforts.
-* Stage in the Product.life Cycle+ 9very product has its life!cycle consisting of four phases namely

introduction growth maturity and decline. :hen a new product is introduced it calls for the heaviest doses of advertising and therefore the budget gets blown!up. ;uring the growth stage the funds spend are really substantial. 4owever when the product reaches the stage of maturity or saturation and the stage of decline it is the price appeal that works than the advertising strategy. 4ence the advertising spending gets reduced considerably.
.* Prevailing ,conomic Conditions+ 'he economic activities are not always the same. 'he economic system

faces brisk and slack phases which are referred to as boom and slump phases of business cycle. ;uring the sour economic conditions majority of the companies cut back the advertising budget and during the period of boom conditions they fatter their budgets beyond limits. 'his has been because the business community thinks advertising as recurring expenditure than an investment.
0* Age of the Company+ A company which is seasoned and is known to the consumers will have certainly an

advantage in introducing a new product or a service. <eople readily accept the new product in the light of its past dependable performance. 5n the other hand a new company that has not introduced itself will sweat in introducing its products.
1* Si(e of the Company+ It goes without saying that a bigger company with vast financial resources within its

easy reach will have definitely liberal advertising budget. 9ven if it decides to spend say only , percent of its sales the advertising funds will be quite substantial and the desired effects or results can be brought about easily. 5n the other had for a small company it would work out almost +- per cent to ,= per cent of its sales to earmark the amount equal to that of a big company.

?* $unds Available+ An absolute limit is put on the advertising budget by what a company can afford irrespective

of its age and si#e. 'he advertising manager has really wonderful ideas to increase the sales profits to the firm and the satisfaction to the consumers. 4owever they are of no avail as they cannot be reali#ed as funds are not available. 'hus the company has got to be satisfied with less ambitious workable si#e of the budget as forced by the financial stringency the company conditions put. 3inance is a major key factor or principal budget factor that dictates the si#e of the advertising budget.
@* Competitive Activities+ It is the ability to si#e up the competitor or competitors and their activities than the

ability to spend that pays rich dividends at times. 'he success of the advertiser rests on the strategic approach and spending. It is possible only when the advertiser knows 64ow much is his competitor spendingA :hat is the format of his spendingA :hat is his strategyA And so on. "ost of the companies use their competitors7 budget pattern as their model for budget purposes.
)=* Approach to Advertising+ 'he amount to be spent on advertising is also depending on the way in which it

is looked upon. 'raditionally it has been accepted as the current expenditure like any other selling expenditure however now!a!days the attitude and philosophy has undergone a thorough change and it is more looked upon as an investment than a mere current expenditure because it has long!term cumulative effects on the company efforts and results.

1.1./.

Process of Advertising %udget

Advertising budget is prepared by advertising manager in consultation with marketing!manager of the company. 'he advertising budget process involves the following main steps( )* Setting Advertising )b*ectives+ Before deciding on advertising 2etting Advertising 5bjectives budget the advertising manager must be clear about advertising objectives. 'hese objectives should be clearly defined in quantitative ;etermining 'asks to be terms so that amount of advertising budget can be decided for achieving performed to Achieve Advertising 5bjectives these objectives. "ain advertising objectives can be to achieve the desired level of sales to enhance market share by specific percentage <reparing Advertising Budget to increase awareness regarding product and its uses to develop preference for our product and to convince the customers to buy our Approval product. 'hese objectives will help the advertising manager to determine and to allocate the ad budget.
+* 0etermining

1asks to be Allocation of Advertising Budget Performed to Achieve Advertising )b*ectives+ After identifying advertising!objectives the next step "onitor and >ontrol is to determine tasks activities strategies functions to be performed $igure #.11+ Process of to achieve the advertising objectives. 'hese tasks may include% selection of Advertising %udget media selection of advertising! agency designing of advertisement copy deciding frequency of advertisement timing of advertisement quantum of space to be taken in print media etc. 'his requires a good knowledge of various activities of an effective advertising campaign. :hile determining the activities to be performed the advertiser keeps in mind the activities done last year and activities of competitive concerns.

,* Preparing Advertising %udget+ After identifying various activities to be done to achieve advertising

objectives the next step is to find the cost of all such activities. 'otal cost of all such activities is the amount required for advertising!budget. 'o keep the budget flexible certain amount in the form of provision for contingencies is added to the total cost. -* Approval+ After preparing advertising budget it is sent to top!management through marketing manager for necessary approval. In large organi#ations this proposed ad!budget is evaluated reviewed and scrutini#ed by high!powered!budget committee before submitting it to the top!management for final approval. Budget committee will ensure that proposed budget will be effective enough to achieve advertising objectives. It will also ensure that all the required activities to achieve advertising objectives have been covered and the rates/cost of various activities is competitive. After approval by budget committee it is presented before top! management. 'op!management will see if the budget is affordable need based and justified. 'op!management can impose ceiling on proposed budget and send it back to budget!committee for necessary review. If it finds the budget justified and within affordable limit then it will pass the budget.

.* Allocation of Advertising %udget+ After the budget is approved by the top management the next step is to

allocate it. Allocation means dividing the advertisement budget on different products and activities. Advertising budget is allocated on various product!lines product items media sales!territories advertising research etc. It involves determining which market product% promotional element will receive how much of the amount of funds appropriated. Advertising!allocation depends upon company7s policies competitors strategies nature of tasks required to achieve advertising objectives stage of product life!cycle market si#e company7s promotional plans charges of advertising agency etc. :hile allocating the advertising budget to different activities/territories/products the budget should have flexibility to accommodate sudden changes in the market competitors7 strategies and change in other components of marketing environment. Budget allocation should not be very rigid. Advertising manager should be authori#ed to make necessary modifications in allocation of advertising!budget.
0* Monitor and Control+ After allocation of advertising budget it is essential to have an adequate monitoring and

control over it. In control actual expenditure is compared with planned expenditure. In case actual expenditure is more than planned expenditure then corrective!actions are taken and responsibilities are fixed to ensure cost control over advertising!budget. "onitoring and control of ad!budget is necessary to make maximum!utili#ation of funds to reduce wastage in ad!expenses and to increase efficiency in various advertising activities. Advertisement effectiveness is monitored and evaluated in the light of the budget appropriated.

1.1.2.

1heoretical Approaches to %udget Setting

'here are three important issues need to look over before making advertising budget decisions( )* ,conomies of Scale+ Is there some relevant range in which increments of advertising yield increasing returnsA
+* 1hreshold ,ffects+ Is there some minimum level of exposure that must be exceeded for advertising to have

a discernible effectA
,* Interaction ,ffects+ ;oes advertising interact with each element of the marketing mix especially personal

selling to produce effects that are greater than the sum of their separate effectsA 'he answers to two of these questions can be found in the conceptual framework of the models discussed below. 'he logical process of arriving at the communication budget is inspired by the marginal analysis rooted in economics and the relationship of communication expenditure with sales with the latter taken as a function of the former( )* Marginal Analysis+ As advertising/promotional expenditures increase sales and gross margins also increase to a point but then they level!off. <rofits are shown to be a result of the gross margin minus advertising expenditures. Bsing this theory to establish its budget a firm would continue to spend advertising/promotional dollars as long as the marginal revenues created by these expenditures exceeded the incremental advertising/promotional costs. As shown on the graph the optimal expenditure level is the point where marginal costs equal the marginal revenues they generate /point A*. If the sum of the advertising/promotional expenditures exceeded the revenues they generated one would conclude the appropriations were too high and scale down the budget. If revenues were higher a higher budget might be in order. $igure #.1# graphically represents the concept of marginal analysis.
2ales /`* f/A* C 2ales A C Advertising/promotions expenditures "f/A* C Dross margin

3ixed cost of advertising Advertising/ <romotions /`*

A < C "f/A* 6 A C <rofit $igure #.1#+ Marginal Analysis

Assumptions of Marginal Analysis :hile marginal analysis seems logical intuitively certain weaknesses limit its usefulness. 'hese weaknesses include the assumptions that( i* Sales are a 0irect Measure of Advertising and Promotions ,fforts+ 'he fact that the advertiser needs to set communications objectives that contribute to accomplishing overall marketing objectives but at the same time they are different. 5ne reason for this strategy is that it is often difficult if not impossible to demonstrate the effects of advertising and promotions on sales. Bsing sales as a direct measure it has been almost impossible to establish the contribution of advertising and promotion.

According to $rank %ass3 $'here is no more difficult complex or controversial problem in marketing than measuring the influence of advertising on sales&. According to 0avid Aaker and 4ames Carman3 $Eooking for the relationship between advertising and sales is somewhat worse than looking for a needle in a haystack&. 'hus to try to show that the si#e of the budget will directly affect sales of the product is misleading. A more logical approach would be to examine the impact of various budgets on the attainment of communications objectives. 2ales are not the only goal of the promotional effort. Awareness interest attitude change and other communications objectives are often sought and while the bottom!line may be to sell the product% these objectives may serve as the basis on which the promotional program is developed.
ii* Sales are determined Solely by Advertising and Promotion+ 'his assumption ignores the remaining

elements of the marketing mix 6 price product and distribution 6 which do contribute to a company7s success. 9nvironmental factors may also affect the promotional program leading the "arketing "anager to assume the advertising was or was not effective when some other factor may have helped or hindered the accomplishment of the desired objectives. :hile the economic approach to the budgeting process is a logical one the difficulties associated with determining the effects of the promotional effort on sales and revenues limit its applicability. "arginal analysis is seldom used as a basis for budgeting /except for direct!response advertising*.
+* Sales 5esponse Models+ 'he sales curve in figure #.1# shows sales leveling!off even though advertising

and promotions efforts continue to increase. 'he relationship between advertising and sales has been the topic of much research and discussion designed to determine the shape of the response curve. Almost all advertisers subscribe to one of two models of the advertising/sales response function( the concave!downward function or the 2!shaped response curve. i* Concave.0ownward $unction+ After reviewing more than )== studies of the effects of advertising on sales 4ulian Simon and 4ohan Amdt concluded that the effects of advertising budgets follow the micro! economic law of diminishing returns i.e. as the amount of advertising increases its incremental value decreases. 'he logic is that those with the greatest potential to buy will likely act on the first /or earliest* exposures while those less likely to buy are not likely to change as a result of the advertising. 3or those who may be potential buyers each additional ad will supply little or no new information that will affect their decision. 'hus according to the concave!downward function model the effects of advertising quickly begin to diminish as shown in figure #.1& a. Budgeting under this model suggests that fewer advertising dollars may be needed to create the optimal influence on sales.

Incremental sales

Advertising expenditures $igure #.1& a!+ Concave.0ownward 5esponse Curve

ii* S.Shaped 5esponse $unction+ "any advertising managers assume the 2!shaped response curve / figure

#.1& b* which projects an 2!shaped response function to the budget outlay /again measured in sales*. Initial outlays of the advertising budget have little impact /as indicated by the essentially flat sales curve in range A*. After a certain budget level has been reached /the beginning of range B* advertising and promotional efforts begin to have an effect as additional increments of expenditures result in increased sales. 'his incremental gain continues only to a point. 4owever because at the beginning of range > additional expenditures begin to return little or nothing in the way of sales. 'his model suggests a small advertising budget is likely to have no impact beyond the sales that may have been generated through other means (e.g.

word!of!mouth*. At the other extreme more does not necessarily mean better( Additional dollars spent beyond range B have no additional impact on sales and for the most part can be considered wasted. As with marginal analysis one would attempt to operate at that point on the curve in area B where the maximum return for the money is attained.

Incremental sales

Gange A

Gange B

Gange >

b! S.Shaped 5esponse $unction $igure #.1&+ Advertising Sales75esponse $unctions

:eaknesses in these sales response models render them of limited use to practitioners for direct applications. "any of the problems seen earlier 6 the use of sales as a dependent variable measurement problems and so on 6 limit the usefulness of these models. At the same time keep in mind the purpose of discussing such models. 9ven though marginal analysis and the sales response curves may not apply directly they give managers some insight into a theoretical basis of how the budgeting process should work. 2ome empirical evidence indicates the models may have validity.

1.1.6.

%udgeting Methods used for $i-ing Ad %udget

'he various budgeting methods used for determining the ad budget takes several forms as shown in figure below. 'hese ad budgeting methods are also termed as the types of ad budget.
%udgeting Methods for Advertisement

<ercentage of 2ales "ethod >ompetitive <arity "ethod 5bjective and 'ask "ethod All you can Afford Hudgment "ethod Increase over East Fear7s Budget Geturn on Investment "ethod Iuantitative "ethods 9xperimental Approach

1.1.6.1.

Percentage of Sales Method

Bnder this method the amount to be appropriated for advertising is arrived at by multiplying the value of past year7s sales or projected sales for the budget period with a pre!determined percentage. Advertising Budget Amount C <ast Fear7s 2ales or Anticipated 2ales <re!determined <ercentage 1he percentage depends upon many factors like nature of product level of competition availability of funds stage of product life cycle amount spent on advertising by competitors etc. 2ome companies like mining

companies steel!companies appropriate )J to +J of sales for advertising budget while consumer!product! companies like cosmetic!companies appropriate ,=J to -=J of sales for advertising. 8ere past sales or future sales can be taken as base for determining ad!budget. 'he past sales may be of immediate previous year or average sale of preceding two or three years. But taking sale of past years may be wrong as previous year7s sales may not be realistic forecast of future sales. 3uture sales will probably be more than past sales as a result of advertising. 2ome companies take future sales as a basis for advertising!budget. By doing so advertising efforts are related to future needs and future conditions. Advertising expenditure should be related to sales volume the advertisement is expected to produce. But it is very difficult to make reliable and accurate estimate of future sales. Another base followed in this method is 9unit of sales: . Bnder this method specific amount of rupees is allocated to the advertising budget for each unit sold. It is also named as fixed!sum!per!unit of product method. It is based on the assumption that a specific amount of advertising is required for marketing each unit. It is useful in the advertisement of specialty goods of high!unit!price. Merits of Percentage of Sales Method )* Simple+ 'his method is simple workable and easy to understand.
+* $le-ible+ 'he advertising appropriation does not remain fixed. It fluctuates directly with sales. If past or

projected sales are high the appropriation of advertising will be high.

,* Prevents Advertising ;ars+ It helps the industry in preventing advertising wars because advertising

expenses are proportionate to market share in sales. >ompanies with more sales spend more on advertising and companies with fewer sales spend less on advertising. 2o in this method advertising budget is decided on the basis of level of sales.
-* Satisfactory+ 2ince this method directly relates advertising expenditure to sales it seems to be very

satisfactory to many advertisers. 0emerits of Percentage of Sales Method Although this method is very popular method of framing advertising budget it suffers from some weaknesses which are as follows( )* Illogical+ It is illogical method because as per this method the company with more sales will spend more on advertising and the company with fewer sales will spend less on advertising. But in reality the need is just opposite to it. A company with fewer sales should spend more on advertising so that it can push up its sales. $or e-ample3 there are say two similar companies in the same industry. 'he sale of first company is ` .= lakhs and sale of other company is ` -= lakhs. Kow as per the need the second company should spend more than the first company so that it can increase its sales. But as per method of percentage of sale second company will spend less on advertising.
+* Arbitrary+ 'he percentage on sales is fixed arbitrarily and not scientifically. 'here is no scientific method

for fixing this percentage.

,* %aseless 5esults when Sales are 0eclining+ 'his method gives very dangerous results in a case where

sales are declining. In such a case as per this method advertising budget would be less whereas in reality the appropriation to advertising budget should be more to overcome the problem of decreasing sales. $or e-ample3 if sales of a company are ` += lakhs in first year and ` )0 lakhs in second year then according to this method appropriation to advertising will decrease by same percentage. But in reality company should spend more on advertising so that it can regain its earlier position and can reverse the trend of declining sales.
-* Considers Advertising ,-pense as 0ependent <ariable on Sales+ 'his method considers advertising as

result of sales i.e. sales affect advertising expenditure. As per this method if sales are high appropriation of advertising will be high. If sales are low appropriation to advertising will be low. But the fact is that advertising affects sales. If advertising expenditure is high it may result in higher sales and if advertising expenditure is decreased it may result in decrease in sales. 4ence this method considers advertising as a

Lresult of sales7 whereas the fact is that Ladvertising results in sales7. 2o considering advertising expense as a dependent variable on sales is wrong.
.* %aseless 5esults in Introduction Stage of Product."ife.Cycle+ 'his method gives inappropriate results if

the advertiser has introduced a new product in the market. In the introduction stage sales are very low and if the percentage of sale method is used for appropriating the budget then company will appropriate very less amount for advertising but a new product needs heavy initial advertising expenditure to generate sales and to be popular.
0* =ot Much >seful for "ong.1erm Advertising Programmes+ In this method sale is the basis for

appropriating advertising budget. But sales vary from year to year and from market to market. 2o no long! term advertising programme can be prepared.
1* Ignores )ther Important <ariables7$actors affecting Advertising.%udget+ In this method advertising

budget is decided on the basis of sales only and other important factors affecting the advertising budget are ignored like!market needs available opportunities sudden changes in marketing environment level of competition stage in product life!cycle etc. ;espite the above weaknesses and criticism this method is very popular and is widely used.

1.1.6.#.

Competitive Parity Method

It is a traditional approach in which advertising budget is framed in such a way that our company is at par with competitors in spending money on advertising. 4ere advertising is taken as a defensive tool and not as offensive tool to achieve marketing!objectives. Bnder this approach advertisers spend as much as their competitors spend so that their company is not at any disadvantage. It involves collection of relevant data about competitors advertising appropriation. 'his method is based on the assumption that the company in question knows what competitors are doing and what competitors are planning to do. It is also assumed that competitors have similar marketing problems and environment. It assumes that the promotion needs of the organi#ation are the same as that of competitive concerns or rivals. It also assumes that competitors have framed their advertisement budgets correctly and rationally. >ompetitive parity budgets can be determined in several ways. 'hese are as follows( )* 2pend the same rupee amount on advertising as major competitor does% +* 2pend the same percentage of sales on advertising as major competitor does% ,* 2pend the same percentage of sales on advertising as the average of entire industry. All of these alternatives have one feature in common i.e. the actions of competitors largely affect the company7s advertising budget. Merits of Competitive Parity Method )* Considers "evel of Competition+ 'his method is most appropriate where competition is very rigorous. Bnder such circumstances management has to consider the advertising appropriations of competitors to keep itself in line with its competitors.
+* Check on ,-cessive or Meagre %udget+ >omparison of advertising budget with that of rival companies

puts a check on excessive advertisement budget. 2imilarly the companies which are spending very less on advertising in comparison to their rival companies become alert about their meagre ad!budget. 'hus comparison with other rivals makes the company alert of its excessive or meagre spending on advertising.
,* "ogical+ 'he purpose of advertising is to save its market share from competitors and to increase its sales. 2o it is

logical to decide advertisement budget on the basis of budgets of competitive concerns. If we spend very less on advertising than our competitors then our market share may decline. 0emerits of Competitive Parity Method )* ;rong Assumption+ 'his method is based on the assumption that competitors are always right and rational in making their ad!budget. But in reality competitors might have made their ad!budgets in a hapha#ard manner.

+* =on.Availability of Information+ 'he >ompany using this approach needs information about rival7s!

advertising!budgets. But it is not an easy task to collect information about competitor7s ad!budget. 'he management can only makes guess about rival7s ad!budget. 'he advertiser tries to get information about his competitor7s advertisement budget by indirect sources from their employees spying etc. but such information may not always be reliable.
,* 0ifferent Promotion =eeds+ 'his method is based on wrong basic assumption that all firms in an industry

have same opportunities for advertising and same promotional needs. But the promotional needs are never same e.g. when a company launches a new product it will have to compete with competitors7 already well established brands. 'he promotion!needs of these two brands are totally different. 'he new product will require heavier promotional efforts to create awareness among masses as compared to promotional needs of already well established brand.
-* Ignores other <ariables affecting Ad %udget+ 'his method considers only the advertising appropriation

of rival companies. 'his method ignores the other important factors affecting advertising budget. 'he other important variables can be affordability sales!level needs functions tasks required to be performed by the advertiser to achieve ad!objectives etc.

1.1.6.&.

)b*ective and 1ask Method

'he most desirable method of setting the advertising budget is objective and task method. It is a goal!oriented method of appropriating the budget. It is based on setting advertising objectives and identifying the tasks to be performed to achieve these objectives. 3irst of all advertising objectives are determined. 'hen different tasks to be performed to achieve these objectives are identified. After that cost of all these tasks is estimated and total cost of all these tasks plus some amount for contingencies constitute advertising budget. 'his approach considers advertising as an investment and a means to achieve long!term business objective. ?rick Patrick has defined Lobjective and task approach7 as $listing the advertising objectives and identifying the tasks to be done to achieve these objects.& 5bjectives of advertising are long!term in nature. 'asks are short! term functions to be done to achieve these objectives. 'asks are like short!term goals. Merits of )b*ective and 1ask Method )* More Suitable in Case of =ew Products+ In case of new product there is no previous data on sales and no previous budget. 2o this method is more suitable for new products as it is based on #ero base budgeting i.e. it needs no previous records information etc. 2o for preparing advertising budget in case of new products this method is more appropriate than other methods.
+* @oal )riented+ 'his budget gives due consideration to advertising objectives. In this method all activities

and tasks are enlisted to achieve advertising objectives. 4ence this method is goal oriented.
,* Co.)rdination among 0ifferent Advertising Activities+ In this method all advertising activities and tasks

are decided in advance so better co!ordination can be maintained among various advertising activities and tasks.
-* "ogical+ 'his method is more logical. In this method advertising amount is not decided arbitrarily.

According to this method the advertiser decides advertising budget as per the needs rather than linking budget with competitor7s budget or past sales. It is a need based budget. In this regard it is better than competitive parity method where competitor7s actions are followed blindly.
.* Suitable for Planning in the "ong.5un+ 'his method is based on both short term and long term

advertising objectives. 'his method is more suitable for long term planning. 2o in this regard it is better than affordable method competitive parity method which considers only short term factors. 0emerits of )b*ective and 1ask Method 'his method has some weaknesses which are as follows( )* Ill.0efined )b*ectives+ If the objectives of advertising are not defined correctly the whole budget will go wrong as objectives are the basis of this budget.

+* 0ifficult to 0etermine Specific 1asks+ It is difficult to translate objectives into specific tasks. ;etermining

tasks requires adequate research experience knowledge awareness etc. 2o different tasks cannot be specifically defined.
,* Ignores Affordability+ 'his method considers the cost of various tasks as the basis of budget. But it is

quite possible that cost may not be within affordable limit of organi#ation.
-* Ignores Competitor:s %udget+ 'his method does not give due consideration to competitor7s budget. :hile

in practice if the level of competition is very high then competitor7s budget cannot be ignored while framing our advertising budget. 5n the whole objective and task method is more rational realistic and need based as compared to other methods.

1.1.6.'.

All you can Afford

4ere the advertising budget is established as a predetermined share of profits or financial resources. 'he availability of current revenues sets the upper limit of the ad budget. 'he only advantage to this approach is that it sets reasonable limits on the expenditures for advertising. 4owever from the standpoint of sound marketing practice this method is undesirable because there is no necessary connection between liquidity and advertising opportunity. Any firm that limits its advertising outlays to the amount of available funds will probably miss opportunities for increasing sales and profits.

1.1.6./.

4udgment Method

In this method advertising budget is decided by the experienced managers of the company on the basis of their judgment. 4ere advertising budget is based on arbitrary thinking of some experienced managers and not based on scientific lines. 5ver the years some managers gain experience and this enables them to arrive at appropriate figure for advertising budget by using their judgment. 'hey decide the advertising budget at a lump sum figure considering all relevant factors like objectives of advertising actions and reactions of competitors nature of customers level of sales availability of funds cost of various media stage in product life cycle etc. 'his method involves no clerical or statistical work. It is based on the experience and judgment of experienced managers. 2o it is also named as arbitrary method.

1.1.6.2.

Increase over "ast Aear:s %udget

'his method involves an increase in preceding year7s expenditure by a certain percentage to enable a firm to consider increase in advertising cost and to provide for planned growth in sales. Increase in price level of advertising inputs leads to increase in advertising cost. >ompany may also expect increase in sales and for increased sales more advertising expenditure will be required. 2o the company should increase its advertising budget over past year7s budget. 'his is a very simple method. But it has certain limitations( )* Ignores Change in Marketing ,nvironment and )b*ectives of Advertising+ 'his method simply ignores the needs and objectives of advertising. 'here may be change in marketing environment in comparison to last year like entry of new competitors change in government policy etc. 2o changed environment may necessitate preparation of entirely new budget.
+* 5epetition of "ast Aear:s Mistakes+ 'his method simply adds a certain percentage to last year budget.

4ence the errors mistakes and weaknesses of last year7s budget are carried forward.
,* =ot Possible for =ew Product or in Case of =ew Company+ 'his method cannot be used when a

company launches new product or in case of a new company that has come into existence just in this year.

1.1.6.6.

5eturn on Investment Method

Geturn on investment method is entirely different from other methods. 'his method considers advertising expenditure as an investment and not as routine revenue expenditure. Eike other investments of the company advertising is also expected to give certain return. Advertising builds up an intangible asset that is brand!equity. Brand equity refers to brand popularity and brand preference. 'his asset has market value and can be sold at any stage. 'he return that the company gets from advertising is generally spread over a period of time. Advertising expenditure in one year generates sales for years and thus returns on this investment flows in for many years. Advertising results in increased profits generated by increase in sales

and goodwill. 'his method considers long run effects of advertising. >apital budgeting techniques like net present value discounted cash flow pay!back!method etc. are used to appropriate the amount of advertising budget. According to this method company spends on advertising till return on investment is more than the normal rate of return. 'his method correlates sales and profits with advertising expenditure. It is based on very logical considerations but in practice it is very difficult to assess the returns from advertising. Because of its complexity it is not used in real life.

1.1.6.B.

Cuantitative Methods Statistical Methods!

2tatistical techniques like multiple regression probability simulation or programming techniques etc. are used to prepare advertising budget. "ultiple regressions help to determine the effect of various factors on the si#e of advertising budget i.e. it measures the cumulative effect of all the factors affecting advertising budget. Bsing simulation inter!relationship among various advertising activities and their effect on advertising budget is measured. <robability is used to estimate the chances that a consumer will purchase the product if he is exposed to an ad copy. :ith the development of computers use of quantitative methods has increased. 'hese methods assist the advertiser in deciding ad budget along with other methods of advertising. Bse of these methods is very tedious and only experts can make use of these methods.

1.1.6.D.

,-perimental Approach

9xperimental approach is used as an alternative to the statistical approaches and mathematical models. 'he promotion or brand manager uses tests and experiments in one or more selected market areas. 'he purpose is to determine the impact of input variations that might be used. 'he feedback data from these experiments and tests is used in determining the advertising budget. A brand may be simultaneously tested in several market areas with similar population level of brand usage and brand share. ;ifferent advertising expenditure levels are kept for each market. Brand awareness and sales levels are measured before during and after the test in each market. Gesults are compared and estimates can be developed on how budget variations might influence advertising results nationwide. 'he managers may decide any level of budget depending on the firm7s advertising objectives. Apparently the experimental approach removes the difficulties faced by other budgeting methods.