1.

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”.

1.1. 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.

1.2. Factors Influencing the Size of the Sales Promotion Budget

Following factors affect the size of sales promotion budget:
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. These
objectives are – bringing about increase in sales, introduction of new products, supporting sales force,
reaching inaccessible consumers, entering a new market, improving dealer relations, expanding industry’s
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 sales
promotion budget.
2) Coverage Expectations: Sales Promotion coverage implies the number of persons to be reached. It is the
question of reaching a target audience through different media and media vehicles. The extent of coverage
is influenced very much by the nature of the market enjoyed by the products.
3) Product Class: Talking of only consumer goods, these have been classified into three categories, namely,
convenience, shopping and specialty. In case of convenience goods, 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. On the other hand, 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. Services goods such as automobiles, fridges, washing machines, T.V sets, cooking ranges,
kitchen-wares and the like warrant heavy doses of sales promotion and personal selling efforts.

4) Stage in the Product-life Cycle: Every product has its life-cycle consisting of four phases, namely,
introduction, growth, maturity and decline. When a new product is introduced, it calls for the heaviest doses
of sales promotion, and therefore, the budget gets blown-up. During the growth stage, the funds spend are
really substantial. However, when the product reaches the stage of maturity or saturation and the stage of
decline, it is the price appeal that works than the sales promotion strategy. Hence, the sales promotion
spending gets reduced considerably.
5) Prevailing Economic Conditions: The economic activities are not always the same. The economic system
faces brisk and slack phases which are referred to as boom and slump phases of business cycle. During the
sour economic conditions, majority of the companies cut back the sales promotion budget and during the
period of boom conditions, they fatter their budgets beyond limits. This has been because, the business
community thinks sales promotion as recurring expenditure than an investment.
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. People readily accept the new product in the light of
its past dependable performance. On the other hand, a new company that has not introduced itself will
sweat in introducing its products.
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. Even if it decides to spend, say, only 3
percent of its sales, the sales promotion funds will be quite substantial and the desired effects or results can
be brought about easily. On the other had, for a small company, 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.
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. The sales promotion manager has really wonderful ideas to increase the
sales, profits to the firm and the satisfaction to the consumers. However, they are of no avail as they cannot
be realized as funds are not available. Thus, 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. Finance is a
major key factor or principal budget factor that dictates the size of the sales promotion budget.
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. The success of the sales promoter rests on
the strategic approach and spending. 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. Most
of the companies use their competitors’ budget pattern as their model for budget purposes.
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. Traditionally, 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.

1.3. Process of Sales Promotion Budget

Sales promotion budget is prepared by sales promotion manager in consultation with marketing-manager of the
company. 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, the sales promotion manager must
be clear about sales promotion objectives. These objectives
should be clearly defined in Determining Tasks to be performed to quantitative terms so that
amount of sales promotion Achieve Sales Promotion Objectives budget can be decided for
achieving these objectives. Main sales promotion
objectives can be to achieve the Preparing Sales Promotion Budget desired level of sales, to
enhance market share by specific percentage, to increase
awareness regarding product Approval and its uses, to develop
preference for our product and to convince the customers to
buy our product. 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
Figure 2.3: Process of sales
2) Determining Tasks to be promotion Budget Performed to Achieve sales
promotion Objectives: After identifying sales promotion
-objectives, the next step is to determine tasks, activities, strategies, functions to be performed to achieve
the sales promotion objectives. These tasks may include; selection of media, selection of promotion agency,
designing of copy sales promotion, deciding frequency of sales promotion, timing of sales promotion , etc.
This requires a good knowledge of various activities of an effective sales promotion campaign. While
determining the activities to be performed the sales promoter keeps in mind the activities done last year and
activities of competitive concerns.

3) Preparing Sales Promotion Budget: After identifying various activities to be done to achieve sales
promotion objectives, the next step is to find the cost of all such activities. Total cost of all such
activities is the amount required for sales promotion budget. To keep the budget flexible, certain
amount in the form of provision for contingencies is added to the total cost.
4) Approval: After preparing sales promotion budget, it is sent to top-management through marketing manager
for necessary approval. In large organizations, this proposed sales promotion budget is evaluated, reviewed and
scrutinized 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 sales promotion
objectives. 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. After approval by budget committee, it is
presented before top-management.

Top-management will see if the budget is affordable, need based and justified. Top-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.

5) Allocation of Sales Promotion Budget: After the budget is approved by the top management, the next step is
to allocate it. Allocation means dividing the sales promotion budget on different products and activities. Sales
promotion budget is allocated on various product-lines, product items, media, sales-territories, sales promotion
research, etc. It involves determining which market, product; promotional element will receive how much of the
amount of funds appropriated. Sales promotion allocation depends upon company’s policies, competitors
strategies, nature of tasks required to achieve sales promotion objectives, stage of product life-cycle, market
size, company’s promotional plans, charges of sales promotion agency, etc. While allocating the sales
promotion budget to different activities/territories/products, the budget should have flexibility to accommodate
 sudden changes in the market, competitors’ strategies and change in other components of marketing
environment. Budget allocation should not be very rigid. Sales promotion manager should be authorized to
make necessary modifications in allocation of sales promotion budget.

6) Monitor and Control: After allocation of sales promotion 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 sales promotion budget. Monitoring and control of sales promotion budget is
necessary to make maximum-utilization of funds, to reduce wastage in sales promotion expenses and to
increase efficiency in various sales promotion activities. Sales promotion effectiveness is monitored and
evaluated in the light of the budget appropriated.

1.4. Types/Methods of Determining Sales Promotion Budget

Types of sales promotion budget include:
1) Percentage of sales method,
2) Competitive parity method,
3) Objective and task method,
4) All you can afford,
5) Judgment method,
6) Increase over last year’s budget,
7) Return on investment method,
8) Quantitative methods (statistical methods), and
9) Experimental approach.

1.4.1. Percentage of Sales Method

Under this method, 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.

Sales Promotion Budget Amount = Past Year’s Sales or Anticipated Sales × Pre-determined Percentage

The percentage depends upon many factors like nature of product, level of competition, availability of funds,
stage of product life cycle, amount spent on sales promotion by competitors, etc. Some companies like mining
companies, steel-companies appropriate 1% to 2% of sales for sales promotion budget, while consumer-
product-companies like cosmetic-companies appropriate 30% to 40% of sales for sales promotion.
Here past sales or future sales can be taken as base for determining sales promotion budget. The 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 year’s sales may not be realistic forecast of future sales. Future sales will probably be more
than past sales as a result of sales promotion. Some companies take future sales as a basis for sales promotion
budget. By doing so, sales promotion efforts are related to future needs and future conditions. Sales promotion
expenditure should be related to sales volume, the sales promotion 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 ‘unit of sales’. Under this method, specific amount of rupees is
allocated to the sales promotion 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 sales promotion is required for marketing each
unit. It is useful in the sales promotion of specialty goods of high-unit-price.
Merits of Percentage of Sales Method
i) Simple: This method is simple, workable and easy to understand.
ii) Flexible: The sales promotion appropriation does not remain fixed. It fluctuates directly with sales. If past
or projected sales are high, the appropriation of sales promotion will be high.
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. Companies with more sales spend more on
 sales promotion and companies with fewer sales spend less on sales promotion. So in this method, sales
promotion budget is decided on the basis of level of sales.
iv) Satisfactory: Since this method directly relates sales promotion expenditure to sales, it seems to be very
satisfactory to many sales promoters.

Demerits of Percentage of Sales Method

Although this method is very popular method of framing sales promotion budget, 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. But in reality, the
need is just opposite to it. A company with fewer sales should spend more on sales promotion so that it can
push up its sales. For example, there are say two similar companies in the same industry. The sale of first
company is ` 50 lakhs and sale of other company is ` 40 lakhs. Now 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 sales promotion.
ii) Arbitrary: The percentage on sales is fixed arbitrarily and not scientifically. There is no scientific method
for fixing this percentage.
iii) Baseless Results when Sales are Declining: This method gives very dangerous results in a case where
sales are declining. In such a case, as per this method sales promotion budget would be less whereas in
reality, the appropriation to sales promotion budget should be more to overcome the problem of
decreasing sales. For example, if sales of a company are ` 20 lakhs in first year and ` 16 lakhs in
second year, then according to this method appropriation to sales promotion will decrease by same
percentage. But in reality, company should spend more on sales promotion so that it can regain its
earlier position and can reverse the trend of declining sales.
iv) Considers Sales Promotion Expense as Dependent Variable on Sales: This method considers sales
promotion as result of sales, i.e., sales affect sales promotion expenditure. As per this method if sales are
high, appropriation of sales promotion will be high. If sales are low, appropriation to sales promotion will
be low. But the fact is that sales promotion affects sales. If sales promotion expenditure is high, it may
result in higher sales and if sales promotion expenditure is decreased it may result in decrease in sales.
Hence, this method considers sales promotion as a ‘result of sales’ whereas the fact is that ‘sales promotion
results in sales’. So considering sales promotion expense as a dependent variable on sales is wrong.
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. 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 sales promotion but a new product needs heavy initial sales promotion expenditure to
generate sales and to be popular.
vi) Not Much Useful for Long-Term Sales Promotion Programmes: In this method, sale is the basis for
appropriating sales promotion budget. But sales vary from year to year and from market to market. So no
long-term sales promotion programme can be prepared.
vii) Ignores Other Important Variables/Factors affecting Sales Promotion Budget: In this method, sales
promotion budget is decided on the basis of sales only and other important factors affecting the sales
promotion budget are ignored, like-market needs, available opportunities, sudden changes in marketing
environment, level of competition, stage in product life-cycle, etc.

Despite the above weaknesses and criticism, this method is very popular and is widely used.

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. Here sales promotion is taken as a defensive tool and
not as offensive tool to achieve marketing-objectives. Under this approach, sales promoters spend as much as
their competitors spend so that their company is not at any disadvantage. It involves collection of relevant data
about competitors sales promotion appropriation. This 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
organization are the same as that of competitive concerns or rivals. It also assumes that competitors have
framed their sales promotion budgets correctly and rationally.

Competitive parity budgets can be determined in several ways. These are as follows:
i) Spend the same rupee amount on sales promotion as major competitor does;
ii) Spend the same percentage of sales on sales promotion as major competitor does;
iii) Spend the same percentage of sales on sales promotion as the average of entire industry.

All of these alternatives have one feature in common, i.e., the actions of competitors largely affect the
company’s sales promotion budget.

Merits of Competitive Parity Method

i) Considers Level of Competition: This method is most appropriate where competition is very rigorous.
Under such circumstances, management has to consider the sales promotion appropriations of competitors
to keep itself in line with its competitors.
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. 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. Thus, comparison with other rivals makes the company alert of its excessive or meagre
spending on sales promotion.
iii) Logical: The purpose of sales promotion is to save its market share from competitors and to increase its
sales. So it is logical to decide sales promotion budget on the basis of budgets of competitive concerns. If
we spend very less on sales promotion than our competitors, then our market share may decline.

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. But in reality, competitors might have made their sales promotion
budgets in a haphazard manner.
ii) Non-Availability of Information: The Company using this approach needs information about rival’s sales
promotion budgets. But it is not an easy task to collect information about competitor’s sales promotion
budget. The management can only makes guess about rival’s sales promotion budget. The sales promoter
tries to get information about his competitor’s sales promotion budget by indirect sources, from their
employees, spying, etc., but such information may not always be reliable.
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. But the promotional needs are
never same, e.g., when a company launches a new product, it will have to compete with competitors’
already well established brands. 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.
iv) Ignores other Variables affecting Sales Promotion Budget: This method considers only the sales
promotion appropriation of rival companies. This method ignores the other important factors affecting sales
promotion budget. The other important variables can be affordability, sales-level needs, functions, tasks
required to be performed by the sales promoter to achieve sales promotion objectives, etc.

1.4.2. Objective and Task Method

The most desirable method of setting the sales promotion budget is objective and task method. It is a goal-
oriented method of appropriating the budget. It is based on setting sales promotion objectives and identifying
the tasks to be performed to achieve these objectives. First of all, sales promotion objectives are determined.
Then 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 sales
promotion budget.
This approach considers sales promotion as an investment and a means to achieve long-term business objective.

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. The
objectives may be in terms of sales, in terms of communication, improving corporate image, promoting
brand-equity, etc. Objectives must be specific, attainable and measurable. Objectives must be defined in
quantitative terms. For example, 5% increase in market share or 10% increase in sales or 10% increase in
profits, etc.
ii) Identifying Sales Promotion Tasks: The second step
The Objective and Task Method
is to identify the different activities, functions, tasks to be
performed to accomplish sales promotion objectives. These
tasks may include selection of media, designing of message,
Establish Sales Promotion objectives
deciding the appeal, designing sales promotion copy,
deciding frequency of sales promotion, timing of sales
promotion, etc. This necessarily requires a good
Determine specific tasks and activities to
knowledge of various media, achieve objectives
their circulation, their cost,
knowledge about sales promotion agencies, etc.
iii) Estimating Costs of these Tasks: After identifying the different
tasks, the next step is to Estimate costs associated with specific estimate to cost involved in
performing each and every tasks and activities tasks/activity. The total cost of
different task/activities plus cost to meet contingency will be the
amount of sales promotion budget.
Preparation of Sales Promotion Budget
Merits of Objective and Task Method
i) More Suitable in Case of New Products: In case of new product, there is no previous data on sales and no
previous budget. So this method is more suitable for new products as it is based on zero base budgeting,
i.e., it needs no previous records, information, etc. So for preparing sales promotion budget in case of new
products, this method is more appropriate than other methods.
ii) Goal Oriented: This budget gives due consideration to sales promotion objectives. In this method, all
activities and tasks are enlisted to achieve sales promotion objectives. Hence this method is goal oriented.
iii) Co-Ordination among Different Sales Promotion Activities: In this method all sales promotion activities
and tasks are decided in advance, so better co-ordination can be maintained among various sales promotion
activities and tasks.
iv) Logical: This method is more logical. In this method sales promotion amount is not decided arbitrarily.
According to this method, the sales promoter decides sales promotion budget as per the needs rather than
linking budget with competitor’s budget or past sales. It is a need based budget. In this regard, it is better
than competitive parity method, where competitor’s actions are followed blindly.
v) Suitable for Planning in the Long-Run: This method is based on both short term and long term sales
promotion objectives. This method is more suitable for long term planning. So in this regard, it is better
than affordable method, competitive parity method which considers only short term factors.

Demerits of Objective and Task Method

This method has some weaknesses, which are as follows:
i) Ill-Defined Objectives: If the objectives of sales promotion are not defined correctly, the whole budget
will go wrong as objectives are the basis of this budget.
ii) Difficult to Determine Specific Tasks: It is difficult to translate objectives into specific tasks. Determining
tasks requires adequate research, experience, knowledge, awareness, etc. So different tasks cannot be
specifically defined.
iii) Ignores Affordability: This 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 organization.
iv) Ignores Competitor’s Budget: This method does not give due consideration to competitor’s budget. While
in practice, if the level of competition is very high, then competitor’s budget cannot be ignored while
framing our sales promotion budget.

On the whole, objective and task method is more rational, realistic and need based as compared to other
methods.

1.4.3. All you can Afford

Here the sales promotion budget is established as a predetermined share of profits or financial resources. The
availability of current revenues sets the upper limit of the sales promotion budget. The only advantage to this
approach is that it sets reasonable limits on the expenditures for sales promotion. However, from the standpoint
of sound marketing practice, this method is undesirable because there is no necessary connection between
liquidity and sales promotion opportunity. Any firm that limits its sales promotion outlays to the amount of
available funds will probably miss opportunities for increasing sales and profits.
1.4.4. Judgment Method
In this method, sales promotion budget is decided by the experienced managers of the company on the basis of
their judgment. Here sales promotion budget is based on arbitrary thinking of some experienced managers and
not based on scientific lines. Over the years, some managers gain experience and this enables them to arrive at
appropriate figure for sales promotion budget by using their judgment. They decide the sales promotion budget
at a lump sum figure considering all relevant factors like objectives of sales promotion, actions and reactions of
competitors, nature of customers, level of sales, availability of funds, cost of various media, stage in product life
cycle, etc. This method involves no clerical or statistical work. It is based on the experience and judgment of
experienced managers. So it is also named as arbitrary method.

Merits of Judgment Method

i) Simple: This method is simple as it involves no clerical or statistical work. Here, sales promotion budget is
decided on the basis of judgment of person making the sales promotion budget.
ii) Based on all Factors: In this method judgment of sales promoters is based on all the factors affecting
sales promotion budget. Factors like objectives of sales promotion, actions and reactions of competitors,
reactions of customers, level of sales, availability of funds, cost of media, and stage of product in life
cycle, etc., are considered in framing sales promotion budget.

Demerits of Judgment Method

i) Subjective Method: In this method, sales promotion budget is based on judgment of sales promotion
managers. If sales promotion managers are not well experienced then their judgment may go wrong.
ii) Biased: This method gives more emphasis on the judgment of a particular person while deciding sales
promotion budget. 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.

This method gives very good results if person making budget is unbiased and experienced. This method is very
often used by small organizations.

1.4.5. 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. Company may also expect increase
in sales, and for increased sales, more sales promotion expenditure will be required. So the company should
increase its sales promotion budget over past year’s budget. This is a very simple method. 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. There may be change in marketing environment in
comparison to last year like entry of new competitors, change in government policy, etc. So changed
environment may necessitate preparation of entirely new budget.
ii) Repetition of Last Year’s Mistakes: This method simply adds a certain percentage to last year budget.
Hence, the errors, mistakes and weaknesses of last year’s budget are carried forward.
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.

1.4.6. Return on Investment Method

Return on investment method is entirely different from other methods. This method considers sales
promotion expenditure as an investment and not as routine revenue expenditure. Like other investments of
the company, sales promotion is also expected to give certain return. Sales promotion builds up an intangible
asset that is brand-equity. Brand equity refers to brand popularity and brand preference. This asset has
market value and can be sold at any stage. The return that the company gets from sales promotion is
generally spread over a period of time. Sales promotion expenditure in one year generates sales for years
and thus returns on this investment flows in for many years. Sales promotion results in increased profits
generated by increase in sales and goodwill. This method considers long run effects of sales promotion.
Capital budgeting techniques like net present value, discounted cash flow, pay-back-method, etc., are used
to appropriate the amount of sales promotion budget. According to this method company spends on sales
promotion till return on investment is more than the normal rate of return.

This method correlates sales and profits with sales promotion expenditure. It is based on very logical
considerations but in practice it is very difficult to assess the returns from sales promotion. Because of its
complexity it is not used in real life.

1.4.7. Quantitative Methods (Statistical Methods)

Statistical techniques like multiple regression, probability, simulation or programming techniques, etc., are
used to prepare sales promotion budget. Multiple regressions help to determine the effect of various factors
on the size of sales promotion budget, i.e., it measures the cumulative effect of all the factors affecting sales
promotion budget. Using simulation, inter-relationship among various sales promotion activities and their
effect on sales promotion budget is measured. Probability is used to estimate the chances that a consumer will
purchase the product if he is exposed to sales promotion copy. With the development of computers use of
quantitative methods has increased. These methods assist the sales promoter in deciding sales promotion
budget along with other methods of sales promotion. Use of these methods is very tedious and only experts can
make use of these methods.

Merits of Quantitative Methods

i) As this method is based on statistical and econometric methods, so this method is objective, unbiased and
has universal applicability.
ii) In this method relationship of different factors and their effect on sales promotion budget can be measured.

Demerits of Quantitative Methods

i) This method is difficult to use. It can be used only by experts.
ii) This method is rigid, as it has no flexibility because of its mathematical nature.
iii) This method is costly as it requires the services of experts. So small business firms cannot use this method.

Experimental Approach
Experimental approach is used as an alternative to the statistical approaches and mathematical models. The
promotion or brand manager uses tests and experiments in one or more selected market areas. The purpose is to
determine the impact of input variations that might be used. The feedback data from these experiments and tests
is used in determining the sales promotion budget. A brand may be simultaneously tested in several market
areas with similar population, level of brand usage and brand share. Different sales promotion expenditure
levels are kept for each market. Brand awareness and sales levels are measured before, during and after the test
in each market. Results are compared and estimates can be developed on how budget variations might influence
sales promotion results nationwide. The managers may decide any level of budget depending on the firm’s sales
promotion objectives. Apparently, the experimental approach removes the difficulties faced by other budgeting
methods.
The major drawbacks of this approach are the expenses and time involved. The sales promoter also cannot
control the environmental variables that may influence the outcome of such tests.

1.5. Allocating IMC Budgets

Once the total marketing communication budget for a brand has been arrived at, the next task is to allocate it
amongst various promotional tools, markets, and time periods. Factors such as communication objectives,
company policies, total communication budget, characteristics of the target market, nature of the industry, etc.,
affect how the communication budget is allocated among various tools and markets.
Sales Promotion Campaign increased by 6%
during January-September 2007
Growth in Sales Promotion
Indexed growth

107
106
106
Index: Jan-Sept 06 = 100
105
104
103
102
101 100
100
99
98
97
Jan-Sept 06 Jan-Sept 07

Type of Sales
Promotion
7 1
8 % %
% 31%
1
2
3
4

14% 5
6
7

14% 20%

Price promotion Add on promotion

Exchange promotion
Multiple Contact promotion
Combination
promotion promotion
Volume promotion
Figure 2.6

As sales promotion of ethical drugs is not allowed and medical practitioners are the key influencers in the
pharmaceutical industry, sample budget is quite high in many pharmaceutical companies. On an average for existing
product, a medical representative in India gets about 800-2000 units of sample per month, depending on the product
range. And 60% of the companies spend more than 5% of the sales on giving samples to doctors. Similarly, because
of the low product differentiation in medicines, trade schemes are also used to woo stockists and retailers. For 40%
of the companies, 5% or more of the budget goes in trade schemes.

The share of Below-the-Line Tools (BLT) in IMC such as sales promotion, events, in-film promotions, etc., is on the
rise with a greater emphasis on ROI and efficiency. Figure 2.6 also indicates the growth in sales promotion activities
in 2007. For example, currently, around 32-33% of the total promotional budget allocation goes for BLT
promotions, whereas it was around 14% ten years back. Experts feel that apart from benefits like measurability,
focus, and innovation lent by BLT promotions, one important reason for the popularity of BLT is a reduction in the
total communication spending and ergo, budgets of companies. Hence, there are brands like Barista, Starbucks,
Amway, and Oriflame, which devote their entire communication budgets to BLT activities.