Advertising Budget :

Budget is the financial statement of income and expenditure for a given period of time.On
the other hand,advertising budget is estimated to meet the financial requirement of
advertising plans so that advertising objective may be released within a given time frame.
Advertising Budget is the amount of money which can be or has to be spent on advertising
of the product to promote it, reach the target consumers and make the sales chart go on
the upper side and give reasonable profits to the company.

Features of Advertising Budget:

 Advertising Budget is a financial document that shows the total amount to be spent
on advertising and lists the way this amount this amount is to be allocated.
 It is a translation of an advertising plan into monetary units.
 It helps in meeting advertising objectives of an organisation.
 It is prepared for a specific future period of time.
 It is prepared by the advertising manager in consultation with the marketing manager
and approved by the top management.
 It shows the plan of allocation of available funds to various advertising activities.

Factors affecting Advertising Budget Decision:

1.Company’s Current Situation

The primary factor that affects the budget set by the company for advertising purposes is the
current situations that the brand is currently in and the problems that it is facing for the time
being. It is obvious that a business which started recently will have to focus a greater part of
its advertising budget to promote its products as compared to a company that’s already in
the market for a longer period of time.

2.Role of Advertising

In most of the companies, advertising is just meant to be a way to bring in more visitors and
drive more sales, but for some companies, it’s just like the primary way of gathering
customers for their products. In both cases, advertising is supposed to be a necessary
expense. This means that the advertisers are fully aware of the importance of advertising, but
this also uncovers that they want to keeps the costs of advertisements at their minimum,
while on the other hand optimizing them to gain as much as possible.

3.Affordability

It is quite natural for a small company to be able to afford a smaller advertising budget as
compared to large multi-national companies with revenue in millions. Large companies may
not find it difficult to run international campaigns for the promotion of their products. On the
other hand, for smaller businesses, allocating 2000-3000 $ for promotional purpose every
year is really huge amount to spend and is a difficult task to manage

4.Market Share and consumer base:

Companies which have high market share usually require less for advertising .eg. apple
products

5.Competition:

A product which facing high competition have to spend more on advertising. We are a
witness to the Coke versus Pepsi wars.

6.Product substitutability: Commodities like beer, soft drinks etc. require heavy
advertising to establish a different image.

7.The type of product:

Consumer products need more advertising than industrial products. Among consumer
products shopping items such as toothpaste, shampoo and soaps need
to be advertised consistently in order to maintain their brand position. Such products
will have a higher budget appropriation

8. Scope of the market:

If the advertiser wants to approach the national market his budget has to be much more
than that required for local or regional market

9. The quality of the campaign:

When the advertising campaign is striking and is unusually creative, it is immediately
noticed by consumers. In this case the advertisers need not spend on buying media, time
and space. To compensate on poor quality campaign an advertiser may have to spend more
on media, in order to enjoy the same degree of visibility. For example the Cherry Blossom ad,
which used a Charlie Chaplin Ad look alike,was a striking television commercial that
immediately gained attention.

10.Types of Media:
A print advertisement in a local publication may cost less than running an online
advertisement with a popular, credible website. The types of media you select to promote
your product, whether it's radio, print, web, email, billboards or direct marketing, can impact
your advertising budget.
Advertising Budget process:-
Advertising budget process consists of four major steps:

 Collection of data & preparation of budget.

 Presentation and approval of the budget.
 Budget execution.
 Control of budget.

 Collection of Data and preparation of budget :

Determining the size of the future advertising appropriation is the first step in preparing the
advertising budget. The budget must be allocated among different market segment, time
periods and geographical areas depending upon the market potential within that segment
period or area.

 Presentation and approval of the budget :-

The next step in the budget making process after it is developed by advertising head in
consultation with the agency personnel is to present it before the C.E.O for the approval.

 Budget execution:-

the third step is budget making process in the execution of the advertising plan
.administration of advertising spending is the routine activity .the important task undertaken
for this purpose is the purchase of authorized time and space over the media .the cost of
advertising production such as making television commercials is also a significant element in
the overall expenditure for advertising.

 Control of Budget: –

It is duty of advertising manager to see whether actual advertising expenditures coincide with
the budgeted expenditure or not.

A procedure must be evolved which brings information about current expenditure to the
advertising manager.

Methods of advertising budgets:

1. Percentage of Sales Method:

It is a commonly used method to set advertising budget. In this method, the amount for

advertising is decided on the basis of sales. Advertising budget is specific per cent of sales.

The sales may be current, or anticipated. Sometimes, the past sales are also used as the base

for deciding on ad budget. For example, the last year sales were Rs. 3 crore and the company

spent Rs. 300000 for advertising. It is clear that the company has spent 1% of sales in the last
year.

Company has the tendency to maintain certain per cent (or percentage) of sales as ad budget.

Based upon the past, the current and the expected sales, amount for advertising budget is

determined. This method is based on the notion that sales follow advertising efforts and
expenditure. It is assumed that there is positive correlation between sales and advertising
expenditure. This is not the scientific method to decide on advertising budget.

Merits:

The method offers following merits:

(a) It is based on sales volume. Therefore, cost of advertising can be offset against profits
earned from the sales. It satisfies financial management.

(b) This method encourages marketing manager to think in terms of relationship between
promotional costs, selling price, and profits per unit.
(c) It maintains competitive parity. All firms in the industry spend approximately the same
percentage of sales for advertising.

(d) It keeps the company in constant touch with the sales target to be achieved.

Demerits:

The method has been criticized on following grounds:

(a) In absence of specific guidelines, it is not possible to decide the appropriate per cent of
sales. It lacks a scientific base.

(b) Long-term planning is not possible because a long-term sales forecasting seems difficult.

(c) It neglects other objectives of advertising. Only sales are given priority. It doesn’t consider
the need of advertising.

(d) Stage of product life cycle is not considered.

(e) It is, to some extent, inflexible.

(f) It is assumed that only advertising affect sales. It is erroneous.

2. Objectives and Task Method:

This is the most appropriate ad budget method for any company. It is a scientific method to

set advertising budget. The method considers company’s own environment and requirement.

Objectives and task method guides the manager to develop his promotional budget by (1)

defining specific objectives, (2) determining the task that must be performed to achieve them,

and (3) estimating the costs of performing the task. The sum of these costs is the proposed
amount for advertising budget.

The method is based on the relationship between the objectives and the task to achieve these

objectives. The costs of various advertising activities to be performed to achieve marketing

objectives constitute advertising budget.
Under this method, following steps are to be followed to set advertising budget:
1. Determine main objectives of marketing department.

2. Set advertising objectives in terms of sales, profits, brand loyalty, competitive stability, etc.

3. Determine advertising task in terms of various advertising activities required to be

performed to achieve the advertising objectives.

4. Estimate cost of each advertising activity for the defined period.

5. Make sum of costs of all the activities. It is the estimated amount for advertising.

Thus, advertising budget is set on the basis of the objectives a company wants to achieve and

in what way it wants the objectives to be achieved. This method is logically consistent and

practically applicable for all the companies. The method emphasizes on actual needs of the
company. It is considered as a scientific method to set ad budget.

3. Competitive Method:

Competition is one of the powerful factors affecting marketing performance. This method

considers the competitors’ advertising activities and costs for setting advertising budget. The
advertising budget is fixed on the basis of advertising strategy adopted by the competitors.

Thus, competitive factor is given more importance in deciding advertising budget. For

example, if the close competitors spend 3% of net sales, the company will spend, more or

less, the same per cent for advertising. Here it is assumed that “competitors or leaders are
always right.” If not followed carefully, this method may result into misleading.

It is obvious that a company differs significantly from the competitors in terms of product

characteristics, objectives, sales, financial conditions, management philosophy, other

promotional means and expenses, image and reputation, price, etc.
Therefore, it is not advisable to follow the competitors blindly. Marketing/advertising

manager should take competitors’ advertising strategy as the base, but should not follow as

it is. The advertising budget must be adjusted to the company’s internal and external
situation.

Limitations:

Manager must be aware of following limitations of the competition parity method:

(a) In case of a new product, the method fails to guide for deciding on advertising budget.

(b) It is difficult to know in which stage of life cycle the product of close competitor is passing
through.

(c) Company differs in terms of sales, profits, challenges, financial conditions, and so on. To
follow competitors directly may be erroneous.

(d) Advertising is not the sole factors that affect the sales; interplay of many factors
determines sales.

(e) In case, when there are many competitors, it is difficult to decide as to whom the company
should follow.

(f) The method is followed only when there are dominant competitors. In absence of
competition, the method cannot be used.

(g) The method can make a sense only to followers and challengers. It is not applicable to a
market leader.

4. Affordable or Fund Available Method:

This is, in real sense, not a method to set advertising budget. The method is based on the

company’s capacity to spend. It is based on the notion that a company should spend on

advertising as per its capacity. Company with a sound financial position spends more on
advertising and vice versa.
Under this method, budgetary allocation is made only after meeting all the expenses.

Advertising budget is treated as the residual decision. If fund is available, the company

spends; otherwise the company has to manage without advertising. Thus, a company’s
capacity to afford is the main criterion.

Limitations:

Following are the limitations of the method:

(a) The method completely ignores the role or need of advertising in the competitive market
environment.

(b) In long run, it leads to uncertain planning as there is no guarantee that the company will
spend for advertising.

(c) Except company financial position, other factors like company’s need for advertising,
consumer base, competition, and so forth are ignored.

(d) This method only guides that a company should not spend beyond its capacity.

(e) This is not a method in real sense.

(f) There is possibility of bias in deciding advertising amount.

5. Expert Opinion Method:

Many marketing firms follow this method. Both internal and external experts are asked to

estimate the amount to be spent for advertisement for a given period. Experts, on the basis

of the rich experience on the area, can determine objectively the amount for advertising.
Experts supply their estimate individually or jointly.

Along with the estimates, they also underline certain assumptions. Internal experts involve

company’s executives, such as general manager, marketing manager, advertising manager,

sales manager, distribution manager, etc.
Whereas external experts involve marketing consultants, dealers, suppliers, distributors,

trade associations, advertising agencies, and other professionals related to the field.
Marketing consultants and advertising agencies provide such services on professional basis.

Advertising budget recommended by external experts is more neutral (bias-free) and, hence,

is reliable. Experts considers overall situation and give their opinion on how much a company

should spend. Mostly, the experts consider all the relevant factors related to advertising while
deciding on advertising budget.

Merits:

Expert opinion method offers following merits:

(a) The estimates tend to be more balanced as various executives and experts are involved.

(b) The budget is more accurate and realistic because the internal executives are well aware
of company’s strengths and weaknesses.

(c) It is the only option when a company is new, having no past experience.

(d) External experts tend to be more neutral as they are external to organisation

Demerits:

However, the user must be aware of following possible demerits:

(a) It is not a scientific method. Personal value, experience, and attitudes play vital role.

(b) It is difficult to fix responsibility of the final estimates as many experts contribute to budget
estimates.

(c) External experts are not fully aware of the company’s marketing situations.

(d) When more internal experts are involved, it may deteriorate relation due to possible
conflicts or lack of consensus.

(e) Possibility of prejudice or bias cannot be ignored.

(f) All opinions, right or wrong, are given equal importance

6. Historical Method:
In this method last year’s advertising budget is adopted for the year with a view that

practically no change has taken place in the market and market growth is slow, which does

not justify any addition to the budget. Last year’s budget could be multiplied by a factor to
cover media rate increase.

7. Return on Investment (ROI):

In the percentage-of-sales method, advertising budget depends on the level of sales. But

advertising causes sales. In the marginal analysis and S-shaped curve approaches increase in

advertisement budgets may lead to increases in sales. In other words the advertisement
budget can be considered as an investment.

In the ROI budgeting method, advertising and promotions are considered investments, like

plant and equipment. In other words investments in advertisements lead to certain returns.

Like other aspects of the firm’s efforts, advertising and promotion are expected to earn a
certain return.

To many the ROI method is an ideal method of setting advertisement budget. But in reality it

is rarely possible to assess the returns provided by the promotional effort-at least as long as
sales continue to be the basis for evaluation.
CASE STUDIES:

1.Samsung

Objective
Increase the SOV(Share of Voice) of Samsung Handsets on eBay India

How did eBay go about it?

eBay shortlisted 8 sellers who have been selling on eBay for the last 3- 4 years.
These sellers got empanelled with the ND (National Distributor) of Samsung Mobile.
Samsung allocated a separate advertising budget for eBay to promote these set of sellers
along with the individual sellers on the site.
Banners ran across the site to promote the sellers selling Samsung Mobile.
Visitors who clicked on the banners were taken to the view item page, post that they carried
out their purchase of the handset.

Outcome 2012
The SOV of Samsung Mobiles on the site was 18% before the activity started.
After the activity the SOV increase to 32%
Duration of the campaign was 3 months.
Total clicks 35,200
Over all CTR 0.25%

Samsung Mobile now has a separate budget for eBay every quarter and they also have a
separate team to engage and interact with eBay to scale this relationship to the next level.

CASE STUDY -2

Tata Nano
Objective
To sell Nano branded merchandise on eBay & thus create a Buzz about the brand Tata Nano

This was for the first time that an auto major started selling merchandise on ecommerce
platform. eBay facilitated it fabulously.
The Promotions

Created dedicated Microsite for Tata Nano. Onsite banner promotions were done landing to
Tata Nano Microsite. Posts done on Facebook eBay.in fans page. Banners insertions in
eBay.in Marketing Mailers

Also sent exclusive mailers to eBay registered user base. Banner Insertion in marketing
newsletters. ROS banner campaigns done on site.

Outcome 2012

550 SKU's sold within first 3 Months.

Amazing response to the brand.
Offers got more juicy for another 3 months. An exciting contest was run for the eBay users
where users could stand a chance to win Karbonn Tab & many more gifts on buying Nano
branded merchandise through eBay.in

CASE STUDY -3
Marketer: Carwale.com
Agency: Google AdWords

Campaign Brief:
Carwale.com, one of India’s leading automotive web portal, allots 80% of its budget to the
online medium, a large portion of it goes to Google AdWords. Launched in October
2005, Carwale.com is now India’s leading automotive web portal. Owned by Automotive
Exchange Pvt Ltd, it is backed by India’s leading early stage venture capital firm Seedfund,
and top tier US venture fund Sierra Ventures. It has corporate offices across Mumbai, Delhi,
Bhopal and Chennai.

The intent behind forming Carwale was to offer well researched content to both car buyers
and sellers in India to enable them to make informed choices. Carwale also connects users
to leading car manufacturers like GM, Skoda, Mahindra, and so on. It also has affiliations
with leading insurance and finance companies.

Last year, Carwale sold around 15 lakh cars which amounts to 10 per cent of the total cars
sold in the country. Additionally, 30,000 users make inquiries on the website per month, and
a significant portion of this traffic converts into sales.

Execution:
Following the encouraging initial response, Carwale.com turned to Google AdWords to help
them attract more users. The online medium worked wonders to help them effectively
target two different audiences – buyers and sellers, on one hand and manufacturers and
dealers, on the other.
Tufail Khan, Vice President - Marketing, Automotive Exchange Pvt Ltd (carvale.com), finds
the online medium aligned to the ROI centric approach of the company. This is the
reason Carwale.com has allotted 80 per cent of its advertising budget to the online medium,
of which a large portion goes towards Google AdWords. It combines this with offline media
campaigns for effective branding.

Response:
Google AdWords has helped Carwale.com get around 20-35 per cent new visitors per
month. According to Khan, ‘Conversion Tracking’ in Google AdWords was an effective way
to track ROI, and to make future predictions. The Keyword Tool is also used extensively by
the in-house team to check search traffic and cost estimates, before adding new keyword to
their account. Khan also finds the new AdWords interface better and easier to navigate.

He stressed, “All advertisers in the auto industry should start using Google AdWords and
analyse it to see how much ROI is derived from the online space’. He also advised using the
Content Network for branding purposes.
CONCLUSION:
The advertising budget of a business is typically a subset of the larger salesbudget and, within
that, the marketing budget. Advertising is a part of the sales and marketing effort. Money
spent on advertising can also be seen as an investment in building up the business.
Before finalizing the advertising budget of an organization or a company, one has to take a
look on the favorable and unfavorable market conditions which will have an impact on the
advertising budget.
BIBLIOGRAPHY

 Kaur Ramneek ,Singh Parampal, Service Marketing,Kalyani Publishers

 https://landor.com/work/e-bay
 https://freshsparks.com/successful-carwale
GURU NANAK KHALSA COLLEGE FOR WOMEN

Assignment
Of
ADVERTISING AND SALES
MANAGEMENT

TOPIC- ADVERTISING BUDGET DECISIONS

SUBMITTED TO- SUBMITTED BY-

MRS.PUNPREET KAUR GURPREET KAUR

(PG DEPT. OF COMMERCE) M.COM II(4th sem)
Roll No: 2508

SESSION: ( 2018-2019)