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SALES PROMOTION/IMC BUDGET
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. Sales promotion budget is a financial document that shows the total amount to be spent on sales promotion and lists the way this amount is to be allocated. It is a translation of sales promotion plan into money to be spent on sales promotion. It is an estimation of total amount to be spent on sales promotion during a given period of time for achieving marketing objectives. It involves allocation of a portion of total marketing resources to sales promotion functions of a firm. Sales promotion budget shows how much amount is to be spent on sales promotion and how this amount will be allocated among different media, sales territories, products, selling-activities, etc. It states the proposed sales promotion expenditure and serves as a decision-making tool for the management while allocating available funds to the various sales promotion functions and related activities of the company. Sales promotion budget and its process is similar with the Advertising Budget and Integrated Marketing Communication (IMC) budget. All three terms can be used interchangeably also due to close similarity. Sales promotion budget is prepared by sales promotion Manager in consultation with Marketing Manager of the company. But in small business organizations, which do not have separate sales promotion department, the responsibility of preparing sales promotion budget lies on top management or Marketing Manager. According to the Institute of Cost and work Accountant London, “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”.
Features of Sales Promotion Budget
The features of sales promotion budget are as follows: 1) Sales promotion budget is a financial statement expressed in monetary terms, 2) It is for a specific future period. It is prepared prior to the budget period during which it will operate, 3) It is prepared by Sales Promotion Manager. It is approved by top management for its implementation, 4) It shows the plan of allocation of available funds to various sales promotion activities, 5) It affects the selection of media, selection of promotion agency and selection of message source. 6) Its size depends on various internal and external factors, and 7) It is a limiting factor which determines the size of sales promotion campaign. Sales Promotion /IMC Budget as a Concept of Investment Sales promotion budget is assigned to build the image and reputation of the organization. The achievement of the budget is observed over a long period. Some of the expenditure on sales promotion attracts customers immediately; they buy the product when they listen to or view the sales promotion message. This expenditure is known as revenue expenditure. Some expenditure is incurred on building the image and reputation. The effects of sales promotion are realized gradually over a long period. This expenditure is capital expenditure or investment. The expenditure on sales promotion is accepted as revenue expenditure by the income-tax authorities. The marketing manager is authorized to control and spend the money assigned to him for sales promotion purpose. Sales promotion 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. This expenditure is known as capital investment although it is assigned under the revenue budget but it is not accepted as a capital budget.
Factors Influencing the Size of the Sales Promotion Budget
Following factors affect the size of sales promotion budget:
However. During the sour economic conditions. the budget gets blown-up. introduction of new products. these have been classified into three categories. the sales promotion spending gets reduced considerably. it has been accepted as the current expenditure like any other selling . the funds spend are really substantial. counter acting competition. These objectives are – bringing about increase in sales. The success of the sales promoter rests on the strategic approach and spending. the fashion goods require less sales promotion as the buyers can judge the qualities of these products themselves in person while they hop from shop to shop. 4) Stage in the Product-life Cycle: Every product has its life-cycle consisting of four phases. when the product reaches the stage of maturity or saturation and the stage of decline. On the other hand. cooking ranges. and therefore. it is the price appeal that works than the sales promotion strategy. The sales promotion manager has really wonderful ideas to increase the sales. building up goodwill. the business community thinks sales promotion as recurring expenditure than an investment. The extent of coverage is influenced very much by the nature of the market enjoyed by the products. they are of no avail as they cannot be realized as funds are not available. However. entering a new market. for a small company. they fatter their budgets beyond limits. shopping and specialty. 9) Competitive Activities: It is the ability to size up the competitor or competitors and their activities than the ability to spend that pays rich dividends at times. During the growth stage. 10) Approach to Sales Promotion: The amount to be spent on sales promotion is also depending on the way in which it is looked upon. profits to the firm and the satisfaction to the consumers. a new company that has not introduced itself will sweat in introducing its products. the company has got to be satisfied with less ambitious workable size of the budget as forced by the financial stringency the company conditions put. It is possible only when the sales promoter knows –How much is his competitor spending? What is the format of his spending? What is his strategy? And so on. Even if it decides to spend. People readily accept the new product in the light of its past dependable performance. maturity and decline. say. This has been because. reaching inaccessible consumers. 8) Funds Available: An absolute limit is put on the sales promotion budget by what a company can afford irrespective of its age and size. Thus. expanding industry’s sales. namely.V sets. growth. it calls for the heaviest doses of sales promotion. only 3 percent of its sales. Finance is a major key factor or principal budget factor that dictates the size of the sales promotion budget. namely. 5) Prevailing Economic Conditions: The economic activities are not always the same. On the other had. It is a particular sales objective or the set of objectives that shapes the sales promotion budget. On the other hand. Traditionally. dispelling the likely misunderstandings and so on. When a new product is introduced. The economic system faces brisk and slack phases which are referred to as boom and slump phases of business cycle. introduction. It is the question of reaching a target audience through different media and media vehicles. In case of convenience goods.1) Objectives to be Attained: How much the company is going to spend is determined by the objectives to be attained. Objectives act as the sheet anchor and the standards for sales promotion performance. it would work out almost 24 per cent to 30 per cent of its sales to earmark the amount equal to that of a big company. building a brand preference. the sales promotion funds will be quite substantial and the desired effects or results can be brought about easily. 7) Size of the Company: It goes without saying that a bigger company with vast financial resources within its easy reach will have definitely liberal sales promotion budget. washing machines. convenience. fridges. they require large sales promotion expenditure because of their intensive distribution and heavy dependence on mass sales promotion to sell in advance to the prospects before they shop. improving dealer relations. kitchen-wares and the like warrant heavy doses of sales promotion and personal selling efforts. 3) Product Class: Talking of only consumer goods. T. Most of the companies use their competitors’ budget pattern as their model for budget purposes. supporting sales force. Hence. 2) Coverage Expectations: Sales Promotion coverage implies the number of persons to be reached. 6) 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. majority of the companies cut back the sales promotion budget and during the period of boom conditions. Services goods such as automobiles.
After approval by budget committee. Sales promotion allocation depends upon company’s policies. need based and justified. the budget should have flexibility to accommodate . promotional element will receive how much of the amount of funds appropriated. Budget committee will ensure that proposed budget will be effective enough to achieve sales promotion objectives. market size. charges of sales promotion agency. The sales promotion budget process involves the following main steps: 1) Setting Sales Promotion Objectives: Before deciding Setting Sales Promotion Objectives on sales promotion budget. certain amount in the form of provision for contingencies is added to the total cost. the next step is to allocate it. selection of media. product items. 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. While determining the activities to be performed the sales promoter keeps in mind the activities done last year and activities of competitive concerns. functions to be performed to achieve the sales promotion objectives. designing of copy sales promotion. the next step is to find the cost of all such activities. reviewed and scrutinized by high-powered-budget committee before submitting it to the top-management for final approval. the next step is to determine tasks. etc. While allocating the sales promotion budget to different activities/territories/products. Sales promotion budget is allocated on various product-lines. competitors strategies. etc. stage of product life-cycle. to develop Approval preference for our product and to convince the customers to buy our product. to Preparing Sales Promotion Budget enhance market share by specific percentage. Top-management will see if the budget is affordable. etc. Allocation means dividing the sales promotion budget on different products and activities. 1. selection of promotion agency. now-a-days. Main sales promotion objectives can be to achieve the desired level of sales. it is sent to top-management through marketing manager for necessary approval. These objectives Determining Tasks to be performed to should be clearly defined in quantitative terms so that Achieve Sales Promotion Objectives amount of sales promotion budget can be decided for achieving these objectives. This requires a good knowledge of various activities of an effective sales promotion campaign. 4) Approval: After preparing sales promotion budget. Total cost of all such activities is the amount required for sales promotion budget. sales-territories. timing of sales promotion . the sales promotion manager must be clear about sales promotion objectives. These objectives will help the sales Allocation of Sales Promotion Budget promotion manager to determine and to allocate the sales promotion budget. Monitor and Control 2) Determining Tasks to be Performed to Achieve sales promotion Objectives: After identifying sales promotion -objectives. company’s promotional plans. media. product.3. It involves determining which market. this proposed sales promotion budget is evaluated. to increase awareness regarding product and its uses. sales promotion research. It will also ensure that all the required activities to achieve sales promotion objectives have been covered and the rates/cost of various activities is competitive. Process of Sales Promotion Budget Sales promotion budget is prepared by sales promotion manager in consultation with marketing-manager of the company. deciding frequency of sales promotion. strategies.3: Process of sales promotion Budget 3) Preparing Sales Promotion Budget: After identifying various activities to be done to achieve sales promotion objectives. If it finds the budget justified and within affordable limit. These tasks may include. however. then it will pass the budget. Figure 2. 5) Allocation of Sales Promotion Budget: After the budget is approved by the top management. activities. In large organizations. Top-management can impose ceiling on proposed budget and send it back to budget-committee for necessary review. nature of tasks required to achieve sales promotion objectives.expenditure. it is presented before top-management. To keep the budget flexible.
In control. Some companies take future sales as a basis for sales promotion budget. Under this method. If past or projected sales are high.1. 8) Quantitative methods (statistical methods). The past sales may be of immediate previous year or average sale of preceding two or three years. 7) Return on investment method. Companies with more sales spend more on . Sales Promotion Budget Amount = Past Year’s Sales or Anticipated Sales × Pre-determined Percentage The percentage depends upon many factors like nature of product. availability of funds. sales promotion efforts are related to future needs and future conditions. Types/Methods of Determining Sales Promotion Budget Types of sales promotion budget include: 1) Percentage of sales method. etc. It is also named as fixed-sum-per-unit of product method. 1. Sales promotion expenditure should be related to sales volume. level of competition. amount spent on sales promotion by competitors. Monitoring and control of sales promotion budget is necessary to make maximum-utilization of funds. 4) All you can afford. It is useful in the sales promotion of specialty goods of high-unit-price. It is based on the assumption that a specific amount of sales promotion is required for marketing each unit. Merits of Percentage of Sales Method i) Simple: This method is simple. the amount to be appropriated for sales promotion is arrived at by multiplying the value of past year’s sales or projected sales for the budget period with a pre-determined percentage. Budget allocation should not be very rigid. It fluctuates directly with sales. iii) Prevents Sales Promotion Wars: It helps the industry in preventing sales promotion wars because sales promotion expenses are proportionate to market share in sales. 3) Objective and task method. Another base followed in this method is ‘unit of sales’. Some companies like mining companies. steel-companies appropriate 1% to 2% of sales for sales promotion budget. actual expenditure is compared with planned expenditure. and 9) Experimental approach. 5) Judgment method. Here past sales or future sales can be taken as base for determining sales promotion budget. it is essential to have an adequate monitoring and control over it. 6) Monitor and Control: After allocation of sales promotion budget. Sales promotion effectiveness is monitored and evaluated in the light of the budget appropriated.4. ii) Flexible: The sales promotion appropriation does not remain fixed. In case actual expenditure is more than planned expenditure. 6) Increase over last year’s budget.sudden changes in the market. competitors’ strategies and change in other components of marketing environment. the sales promotion is expected to produce. specific amount of rupees is allocated to the sales promotion budget for each unit sold. Percentage of Sales Method Under this method. Sales promotion manager should be authorized to make necessary modifications in allocation of sales promotion budget. 1. Future sales will probably be more than past sales as a result of sales promotion. But taking sale of past years may be wrong as previous year’s sales may not be realistic forecast of future sales. workable and easy to understand. to reduce wastage in sales promotion expenses and to increase efficiency in various sales promotion activities. By doing so.4. stage of product life cycle. while consumerproduct-companies like cosmetic-companies appropriate 30% to 40% of sales for sales promotion. But it is very difficult to make reliable and accurate estimate of future sales. 2) Competitive parity method. the appropriation of sales promotion will be high. then corrective-actions are taken and responsibilities are fixed to ensure cost control over sales promotion budget.
For example. appropriation of sales promotion will be high. The sale of first company is ` 50 lakhs and sale of other company is ` 40 lakhs. ii) Arbitrary: The percentage on sales is fixed arbitrarily and not scientifically. For example. But in reality. the appropriation to sales promotion budget should be more to overcome the problem of decreasing sales. it suffers from some weaknesses which are as follows: i) Illogical: It is illogical method because as per this method. the company with more sales will spend more on sales promotion and the company with fewer sales will spend less on sales promotion. i. This method is based on the assumption that the company in question knows what competitors are doing and what competitors are planning to do. iv) Considers Sales Promotion Expense as Dependent Variable on Sales: This method considers sales promotion as result of sales.sales promotion and companies with fewer sales spend less on sales promotion. Demerits of Percentage of Sales Method Although this method is very popular method of framing sales promotion budget. vii) Ignores Other Important Variables/Factors affecting Sales Promotion Budget: In this method. In such a case. company should spend more on sales promotion so that it can regain its earlier position and can reverse the trend of declining sales.. So considering sales promotion expense as a dependent variable on sales is wrong. then according to this method appropriation to sales promotion will decrease by same percentage. iii) Baseless Results when Sales are Declining: This method gives very dangerous results in a case where sales are declining. But in reality. If sales are low. vi) Not Much Useful for Long-Term Sales Promotion Programmes: In this method. But as per method of percentage of sale. It involves collection of relevant data about competitors sales promotion appropriation. sales are very low and if the percentage of sale method is used for appropriating the budget. it may result in higher sales and if sales promotion expenditure is decreased it may result in decrease in sales. But the fact is that sales promotion affects sales. then company will appropriate very less amount for sales promotion but a new product needs heavy initial sales promotion expenditure to generate sales and to be popular. Under this approach. sudden changes in marketing environment. Hence. Here sales promotion is taken as a defensive tool and not as offensive tool to achieve marketing-objectives. sale is the basis for appropriating sales promotion budget.e. sales promotion budget is decided on the basis of sales only and other important factors affecting the sales promotion budget are ignored. appropriation to sales promotion will be low. there are say two similar companies in the same industry. if sales of a company are ` 20 lakhs in first year and ` 16 lakhs in second year. Despite the above weaknesses and criticism. sales promoters spend as much as their competitors spend so that their company is not at any disadvantage. etc. level of competition. So no long-term sales promotion programme can be prepared. sales affect sales promotion expenditure. In the introduction stage. this method considers sales promotion as a ‘result of sales’ whereas the fact is that ‘sales promotion results in sales’. it seems to be very satisfactory to many sales promoters. So in this method. Competitive Parity Method It is a traditional approach in which sales promotion budget is framed in such a way that our company is at par with competitors in spending money on sales promotion. But sales vary from year to year and from market to market. the second company should spend more than the first company so that it can increase its sales. this method is very popular and is widely used. If sales promotion expenditure is high. like-market needs. stage in product life-cycle. second company will spend less on sales promotion. Now as per the need. the need is just opposite to it. As per this method if sales are high. A company with fewer sales should spend more on sales promotion so that it can push up its sales. It is also assumed that . sales promotion budget is decided on the basis of level of sales. v) Baseless Results in Introduction Stage of Product-Life-Cycle: This method gives inappropriate results if the sales promoter has introduced a new product in the market. There is no scientific method for fixing this percentage. iv) Satisfactory: Since this method directly relates sales promotion expenditure to sales. available opportunities. as per this method sales promotion budget would be less whereas in reality.
competitors might have made their sales promotion budgets in a haphazard manner. All of these alternatives have one feature in common. The sales promoter tries to get information about his competitor’s sales promotion budget by indirect sources. . Demerits of Competitive Parity Method i) Wrong Assumption: This method is based on the assumption that competitors are always right and rational in making their sales promotion budget.. Then different tasks to be performed to achieve these objectives are identified. functions.. These are as follows: i) Spend the same rupee amount on sales promotion as major competitor does.g. the actions of competitors largely affect the company’s sales promotion budget. Similarly the companies which are spending very less on sales promotion in comparison to their rival companies become alert about their meagre sales promotion budget. ii) Check on Excessive or Meagre Budget: Comparison of sales promotion budget with that of rival companies puts a check on excessive sales promotion budget. spying. Competitive parity budgets can be determined in several ways.4. cost of all these tasks is estimated and total cost of all these tasks plus some amount for contingencies constitute sales promotion budget. The promotion-needs of these two brands are totally different. The new product will require heavier promotional efforts to create awareness among masses as compared to promotional needs of already well established brand. After that. Objective and Task Method The most desirable method of setting the sales promotion budget is objective and task method. But in reality. ii) Spend the same percentage of sales on sales promotion as major competitor does. it will have to compete with competitors’ already well established brands. comparison with other rivals makes the company alert of its excessive or meagre spending on sales promotion. sales promotion objectives are determined. The management can only makes guess about rival’s sales promotion budget. So it is logical to decide sales promotion budget on the basis of budgets of competitive concerns.2. If we spend very less on sales promotion than our competitors. iv) Ignores other Variables affecting Sales Promotion Budget: This method considers only the sales promotion appropriation of rival companies.e. 1. etc. This method ignores the other important factors affecting sales promotion budget. It is a goaloriented method of appropriating the budget. First of all. The other important variables can be affordability. tasks required to be performed by the sales promoter to achieve sales promotion objectives. then our market share may decline. It also assumes that competitors have framed their sales promotion budgets correctly and rationally. iii) Spend the same percentage of sales on sales promotion as the average of entire industry. but such information may not always be reliable. management has to consider the sales promotion appropriations of competitors to keep itself in line with its competitors. Under such circumstances. sales-level needs. It is based on setting sales promotion objectives and identifying the tasks to be performed to achieve these objectives.competitors have similar marketing problems and environment. from their employees. e. Merits of Competitive Parity Method i) Considers Level of Competition: This method is most appropriate where competition is very rigorous. iii) Logical: The purpose of sales promotion is to save its market share from competitors and to increase its sales. It assumes that the promotion needs of the organization are the same as that of competitive concerns or rivals. But it is not an easy task to collect information about competitor’s sales promotion budget. i. when a company launches a new product. Thus. iii) Different Promotion Needs: This method is based on wrong basic assumption that all firms in an industry have same opportunities for sales promotion and same promotional needs. ii) Non-Availability of Information: The Company using this approach needs information about rival’s sales promotion budgets. But the promotional needs are never same. etc..
it is better than affordable method. etc. awareness. where competitor’s actions are followed blindly. etc. tasks to be performed to accomplish sales promotion objectives. The objectives may be in terms of sales. all activities and tasks are enlisted to achieve sales promotion objectives. etc. promoting brand-equity. etc. Hence this method is goal oriented. their circulation. In this regard. achieve objectives knowledge about sales promotion agencies. designing of message. This method is more suitable for long term planning. v) Suitable for Planning in the Long-Run: This method is based on both short term and long term sales promotion objectives. deciding frequency of sales promotion. which are as follows: i) Ill-Defined Objectives: If the objectives of sales promotion are not defined correctly. So in this regard. the whole budget will go wrong as objectives are the basis of this budget. the sales promoter decides sales promotion budget as per the needs rather than linking budget with competitor’s budget or past sales.This approach considers sales promotion as an investment and a means to achieve long-term business objective. Establish Sales Promotion objectives deciding the appeal. ii) Difficult to Determine Specific Tasks: It is difficult to translate objectives into specific tasks. improving corporate image. competitive parity method which considers only short term factors. in terms of communication. The total cost of cost to meet contingency will be the budget. But it is quite possible that cost may not be within affordable limit of organization. functions. this method is more appropriate than other methods. designing sales promotion copy. etc. 5% increase in market share or 10% increase in sales or 10% increase in profits. knowledge. In this method sales promotion amount is not decided arbitrarily. So this method is more suitable for new products as it is based on zero base budgeting. Merits of Objective and Task Method i) More Suitable in Case of New Products: In case of new product. the next step is to performing each and every different task/activities plus amount of sales promotion Estimate costs associated with specific tasks and activities Preparation of Sales Promotion Budget Tasks: After identifying the different estimate to cost involved in tasks/activity. It is a need based budget. iii) Co-Ordination among Different Sales Promotion Activities: In this method all sales promotion activities and tasks are decided in advance.. it needs no previous records. These tasks may include selection of media. i. Determining tasks requires adequate research. For example. timing of sales promotion. According to this method. So different tasks cannot be specifically defined. attainable and measurable. so better co-ordination can be maintained among various sales promotion activities and tasks. Objectives must be defined in quantitative terms. their cost. ii) Goal Oriented: This budget gives due consideration to sales promotion objectives. it is better than competitive parity method. information. iii) Estimating Costs of these tasks. So for preparing sales promotion budget in case of new products.e. In this method. ii) Identifying Sales Promotion Tasks: The second step The Objective and Task Method is to identify the different activities. iv) Logical: This method is more logical. Process of Objective and Task Method This method involves following steps for framing sales promotion budget: i) Determining Objectives: The first step involved is to determine objectives of sales promotion. there is no previous data on sales and no previous budget. Demerits of Objective and Task Method This method has some weaknesses. iii) Ignores Affordability: This method considers the cost of various tasks as the basis of budget. . This necessarily requires a good Determine specific tasks and activities to knowledge of various media. Objectives must be specific. etc. experience.
They decide the sales promotion budget at a lump sum figure considering all relevant factors like objectives of sales promotion. sales promotion budget is decided by the experienced managers of the company on the basis of their judgment. All you can Afford Here the sales promotion budget is established as a predetermined share of profits or financial resources. The only advantage to this approach is that it sets reasonable limits on the expenditures for sales promotion. actions and reactions of competitors. Merits of Judgment Method i) Simple: This method is simple as it involves no clerical or statistical work. Judgment Method In this method. reactions of customers. On the whole. This is a very simple method. objective and task method is more rational. Here sales promotion budget is based on arbitrary thinking of some experienced managers and not based on scientific lines. etc. ii) Biased: This method gives more emphasis on the judgment of a particular person while deciding sales promotion budget. stage in product life cycle.4.5. 1. then competitor’s budget cannot be ignored while framing our sales promotion budget. Over the years. change in government policy.4. if the level of competition is very high. more sales promotion expenditure will be required. are considered in framing sales promotion budget. While in practice. Any firm that limits its sales promotion outlays to the amount of available funds will probably miss opportunities for increasing sales and profits.4. Demerits of Judgment Method i) Subjective Method: In this method. However. actions and reactions of competitors. level of sales. and for increased sales.3. and stage of product in life cycle. So changed environment may necessitate preparation of entirely new budget. This method involves no clerical or statistical work. cost of media. realistic and need based as compared to other methods. sales promotion budget is decided on the basis of judgment of person making the sales promotion budget. So the company should increase its sales promotion budget over past year’s budget. cost of various media. Factors like objectives of sales promotion.4. . sales promotion budget is based on judgment of sales promotion managers. availability of funds. etc. It is based on the experience and judgment of experienced managers.. etc. If sales promotion managers are not well experienced then their judgment may go wrong. 1. This method is very often used by small organizations. some managers gain experience and this enables them to arrive at appropriate figure for sales promotion budget by using their judgment. ii) Based on all Factors: In this method judgment of sales promoters is based on all the factors affecting sales promotion budget. Here. Increase over Last Year’s Budget This method involves an increase in preceding year’s expenditure by a certain percentage to enable a firm to consider increase in sales promotion cost and to provide for planned growth in sales. Increase in price level of sales promotion inputs leads to increase in sales promotion cost. availability of funds. That person may be biased in his thinking and he may sanction very small or very large amount for sales promotion which may result in erroneous budget. level of sales. 1. nature of customers. This method gives very good results if person making budget is unbiased and experienced. Company may also expect increase in sales. So it is also named as arbitrary method. from the standpoint of sound marketing practice.iv) Ignores Competitor’s Budget: This method does not give due consideration to competitor’s budget. The availability of current revenues sets the upper limit of the sales promotion budget. this method is undesirable because there is no necessary connection between liquidity and sales promotion opportunity. There may be change in marketing environment in comparison to last year like entry of new competitors. But it has certain limitations: i) Ignores Change in Marketing Environment and Objectives of Sales Promotion: This method simply ignores the needs and objectives of sales promotion.
1. Brand awareness and sales levels are measured before. are used to appropriate the amount of sales promotion budget. The return that the company gets from sales promotion is generally spread over a period of time. sales promotion is also expected to give certain return. This asset has market value and can be sold at any stage. pay-back-method.7. simulation or programming techniques. Sales promotion results in increased profits generated by increase in sales and goodwill. Apparently. Hence. Experimental Approach Experimental approach is used as an alternative to the statistical approaches and mathematical models. Different sales promotion expenditure levels are kept for each market. Use of these methods is very tedious and only experts can make use of these methods..ii) Repetition of Last Year’s Mistakes: This method simply adds a certain percentage to last year budget.. It can be used only by experts. discounted cash flow. inter-relationship among various sales promotion activities and their effect on sales promotion budget is measured. These methods assist the sales promoter in deciding sales promotion budget along with other methods of sales promotion. during and after the test in each market.4. The managers may decide any level of budget depending on the firm’s sales promotion objectives. The purpose is to determine the impact of input variations that might be used. as it has no flexibility because of its mathematical nature. 1. level of brand usage and brand share. It is based on very logical considerations but in practice it is very difficult to assess the returns from sales promotion. Multiple regressions help to determine the effect of various factors on the size of sales promotion budget. With the development of computers use of quantitative methods has increased. Because of its complexity it is not used in real life. etc. Using simulation. Sales promotion builds up an intangible asset that is brand-equity. Sales promotion expenditure in one year generates sales for years and thus returns on this investment flows in for many years. ii) This method is rigid. Capital budgeting techniques like net present value.4. i.6. Like other investments of the company. are used to prepare sales promotion budget. the errors. probability. Demerits of Quantitative Methods i) This method is difficult to use. The feedback data from these experiments and tests is used in determining the sales promotion budget. Merits of Quantitative Methods i) As this method is based on statistical and econometric methods. This method correlates sales and profits with sales promotion expenditure. According to this method company spends on sales promotion till return on investment is more than the normal rate of return.e. ii) In this method relationship of different factors and their effect on sales promotion budget can be measured. Return on Investment Method Return on investment method is entirely different from other methods. the experimental approach removes the difficulties faced by other budgeting methods. So small business firms cannot use this method. etc. unbiased and has universal applicability. This method considers long run effects of sales promotion. Probability is used to estimate the chances that a consumer will purchase the product if he is exposed to sales promotion copy. The promotion or brand manager uses tests and experiments in one or more selected market areas. Brand equity refers to brand popularity and brand preference. Results are compared and estimates can be developed on how budget variations might influence sales promotion results nationwide. This method considers sales promotion expenditure as an investment and not as routine revenue expenditure. A brand may be simultaneously tested in several market areas with similar population. so this method is objective. iii) Not Possible for New Product or in Case of New Company: This 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. Quantitative Methods (Statistical Methods) Statistical techniques like multiple regression. it measures the cumulative effect of all the factors affecting sales promotion budget.. mistakes and weaknesses of last year’s budget are carried forward. . iii) This method is costly as it requires the services of experts.
and time periods. 1. depending on the product range. a medical representative in India gets about 800-2000 units of sample per month. in-film promotions. Factors such as communication objectives. The sales promoter also cannot control the environmental variables that may influence the outcome of such tests. Sales Promotion Campaign increased by 6% during January-September 2007 Growth in Sales Promotion Indexed growth 107 106 105 104 103 102 101 100 99 98 97 100 Index: Jan-Sept 06 = 100 106 Jan-Sept 06 Jan-Sept 07 8 % 14% 14% Type of Sales Promotion 1 7 % % 1 2 3 4 5 6 7 31% 20% Add on promotion Contact promotion Combination promotion Price promotion Multiple promotion Exchange promotion Volume promotion Figure 2. For 40% of the companies. And 60% of the companies spend more than 5% of the sales on giving samples to doctors. affect how the communication budget is allocated among various tools and markets. events. etc. On an average for existing product. trade schemes are also used to woo stockists and retailers. The share of Below-the-Line Tools (BLT) in IMC such as sales promotion. sample budget is quite high in many pharmaceutical companies. company policies. around 32-33% of the total promotional budget allocation goes for BLT .The major drawbacks of this approach are the expenses and time involved.. currently. etc. is on the rise with a greater emphasis on ROI and efficiency. 5% or more of the budget goes in trade schemes. total communication budget. nature of the industry. Allocating IMC Budgets Once the total marketing communication budget for a brand has been arrived at..5. markets. Figure 2. For example. because of the low product differentiation in medicines. characteristics of the target market. Similarly.6 also indicates the growth in sales promotion activities in 2007. the next task is to allocate it amongst various promotional tools.6 As sales promotion of ethical drugs is not allowed and medical practitioners are the key influencers in the pharmaceutical industry.
. whereas it was around 14% ten years back. budgets of companies. Starbucks. which devote their entire communication budgets to BLT activities. Experts feel that apart from benefits like measurability. there are brands like Barista. and Oriflame. one important reason for the popularity of BLT is a reduction in the total communication spending and ergo. Amway. and innovation lent by BLT promotions. Hence.promotions. focus.
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