3 Adv MNGT Unit - 3 Notes BBA 301 Sec - A IMS LU - Fall 2021

BBA-301: ADVERTISING MANAGEMENT (Mo.Tu.We.
10-11 am)
Unit III: Advertising budget: Objectives, preparation and methods of advertising budget;
advertising agency: function, selection and compensation.
Advertising budget: Objectives, preparation and methods of advertising budget.
Advertising Budget1
An advertising budget is an amount set aside by a company planned for the promotion of its goods and
services. Promotional activities include conducting a market survey, getting advertisement creatives made
and printed, promotion by way of print media, digital media and social media, running ad campaigns etc
What Is Advertising Budget?2
An advertising budget is an estimate of a company's promotional expenditures over a certain time period.
More importantly, it is the money a company is willing to set aside to accomplish its marketing objectives.
Understanding Advertising Budget
An advertising budget is part of a company's overall sales or marketing budget that can be viewed as an
investment in a company's growth. The best advertising budgets—and campaigns—focus on customers'
needs and problems and on providing solutions to these issues, not company problems such as an
overstock reduction.
When creating an advertising budget, a company must weigh the value of spending an advertising dollar
against the value of that dollar as recognized revenue. Before deciding on a specific amount, companies
should make certain determinations to ensure that the advertising budget is in line with their promotional
and marketing goals:
 The target consumer — Knowing the consumer and having their demographic profile can help
guide advertising spend.
 Best media type for the target consumer — Mobile or internet advertising, via social media, may
be the answer, although traditional media, such as print, television, and radio may be best for a
given product, market, or target consumer.
 Right approach for the target consumer — Depending on the product or service, consider if
appealing to the consumer's emotions or intelligence is a suitable strategy.
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https://www.wallstreetmojo.com/advertising-budget/
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https://www.investopedia.com/terms/a/advertising-budget.asp
BBA -301 Advertisement Management. Unit-3. Notes. Sec-A. Fall 2021-22 Page 1
 Expected profit from each dollar of advertising spending — This may be the most important
question to answer, as well as the most difficult.
Advertising Objectives & Budgeting3

Advertisements are done with SMART business objectives in mind namely specific, measurable, achievable,
realistic and time sensitive eg: Increase sales by 10% in six months through 20-week long product
awareness campaign held in six target cities. However, there are two debatable schools of thoughts
regarding advertising objectives - is it marketing? Or is it communication? In other words, is it to generate
sale or prepare customers to buy?
Objectives provide performance standards. Budget is derived from your objectives. Also, it is not always
possible to measure the effects of advertising in terms of sales such as advertisement for girl child
education.
Importance of Promotional Objectives

It is important to have the promotional mix objectives for effective advertising. Objectives are standards
against which performance can be measured. Advertising & Promotional objectives are needed considering
the functions they serve in communications, planning & decision making, measurement and evaluation
etc.
a) Objectives serve as a communications and coordination devise

Objectives facilitate co-ordination of various groups working on campaign including support
agencies. Written and approved objectives guide action and discuss issues if any.
b) Objective provide a criterion for decision making

Promotional planner face challenges like creative ideas short-listing, choosing the promotional mix
etc. Promotional objective helps in matching particular strategy.
c) Evaluation of advertising effectiveness

Objectives provide a benchmark against which the success of the campaign can be measured. Good
objectives are measurable and you can justify return on investments.
Classification of advertising objectives

Advertising objectives can be classified as per the various stages in the Product Life Cycle (PLC).
i. Informative
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Informative advertising seeks initial demand by informing about new products, new offers, price.
New market entry strategy, and the product ‘Introduction’ stage of PLC needs informative
advertising.
ii. Persuasive
Objective is to persuade both - new customers and existing customers. Persuasiveness encouraging
switching brand or creating a brand preference, during the ‘Growth’ state or early part of the
‘Maturity’ or complete decline stage.
iii. Reminder
The objective here is to maintain interest and awareness of a well established product in the
market. Reminder advertising is suitable during the later part of the ‘Maturity’ or ‘Complete
Decline’ stage
Types of Advertising Objectives

Promotional objectives evolve from the company’s marketing plan and are rooted in the firm’s marketing
objectives and thus have statements of what is to be accomplished by the overall marketing program.
However, two schools of thoughts operate here - usually to communicate or usually sales or market share.
Clarity on which side of thought you wish to pursue must come.
1. Sales Objectives
Many believe that the only objective of advertising is sale but lack of sale can be due to any of the other
marketing mix elements or due to other factors. Advertising can make consumers aware and interested.
But all the marketing elements must synchronized together to make brand successful. Additionally, effect
of advertising happens over a period of time. Sales objective approach can be used either when advertising
plays a dominant role or when advertiser is looking for immediate results such as sales promotions, DM,
retail promotions, festival sale.
2. Communications Objectives
Objective of a promotional program is to communicate as they are done to achieve goals like building
awareness, brand image and purchase intentions. For achieving such objectives, consumers must be given
information and create favorable bias towards the brand even before purchase behavior to occur. Before
they move closer to purchase, purpose of advertising is to help move them through the different stages.
However, communications objectives as it are seen as being of value only if this results in sale.
SMART Objectives
The SMART objectives are a part of Management by objectives concept introduced by Peter
Drucker. The SMART objectives are used regularly by companies to give goals and objectives to
their employees. It is important to note that SMART objectives start with the word – Specific. Thus
the SMART objective helps the manager or the company to give their team as specific an objective
as possible.
The SMART objectives has a full form which is – Specific, measurable, assignable, realistic and
Time related. The best way to understand SMART objectives is to look at sales planning. The
concept of SMART objectives is explained below by taking an example at sales planning. Let us say
that a sales manager has given their team a target of Rs 1 crore to be achieved in the next 1 year. So
how do we break down each concept of the SMART objectives?
1) S – Specific
The Specific in SMART states that the objective should be specific. In the above example of sales
planning, the objective given by the sales manager is very specific. He has given a target of 1 crore.
Thus the first condition of SMART objective is met. If the sales manager would have said that the
team needs to achieve as much sales as possible by them, then the SMART objective setting has
failed.
2) M – Measurable
SMART objectives, or for that matter any objective, needs to be measurable. The intent is to know
whether the objective is on track or improvement is required. The SMART objective given in the
above example is measurable. The team has to achieve 1 crore of target. Thus, if 80 lakhs is
achieved, than the team has under achieved with 20% loss. If 1.2 crore is achieved, than the team
has over achieved with 20% gain. Thus the SMART objective given is very much measurable.
3) A – Assignable
The SMART objective needs to be assigned to someone. A business man might target 40% growth
this year. However, for the growth, he needs to assign the objectives to someone. It may be his
finance team, his sales team or his production team. In the above sales planning example, the sales
manager has assigned a specific and measurable target to his sales team. It is the sales team who
will help achieve the SMART objectives.
4) R – Realistic
The SMART objective needs to be realistic. The objective should not be what you want, the
objective should be what you can achieve. Thus, in the above example, if last year the total sales of
the organization was 40 lakhs, than the demand by the sales manager to achieve 1 crore this year
is an unrealistic demand. In this case, there is no use of the SMART objective as the objective is
likely to fail. In the unlikely event that the objective is too far fetched, there needs to be a
justification as to why these unrealistic figures are kept on the table.
5) Time related
Goals are kept only by keeping a time limit. Similarly SMART objectives need to have the element
of time involved. In the above case, if the sales manager had said that you need to achieve 1 crore
sales but time had not been specified, the sales team can show the 1 crore sales figure in the next
100 years.
This is because no time related target has been given. Hence, there would be no urgency in
achieving the objective. Similarly, in production if you give a target to the production team but do
not mention the time in which products are needed, you are likely to delay the production. Thus,
SMART objective needs to clearly specify the time and it needs to be time related.
It makes business sense for an organization to regularly use the SMART objectives. Remember that
SMART objectives also need feedback. Only after taking feedback can you know whether the
SMART objectives have been achieved or not.
If you are a manager, the SMART objectives need to be established in several places at once and
the feedback taken.
Examples of SMART objectives
 Sales – Achieve the given target in a specified time period.

 Communications – Ensure that the proper ATL and BTL activities are carried out on a timely
basis as planned by the management.
 Logistics SMART objectives – Deliver the goods as per terms and conditions. Ensure that the
goods are delivered in proper condition.
 Commercial – Manage accounts properly on a quarterly or annual basis. Submit the accounts
to the accounting team for analysis on a time basis.
All of the above are SMART objectives followed by various departments in an organization. Thus
each of the department is being led through management by objectives for which SMART
objectives is a very useful tool.
Various Approaches for Setting Advertising Objectives4
A. DAGMAR Approach to Objective Setting

DAGMAR (Defining Advertising Goals for Measured Advertising Result) is a concept pioneered by Russel H.
Colley (1961). DAGMAR helps in establishing a measurable link between advertising goals and advertising
results monitors and evaluates promotion campaigns. There are 52 distinguished advertising goals listed
in DAGMAR, which can be used for single advertisement or yearlong campaign for a product. Goals may
pertain to sales, image, attitude etc.
According to DAGMAR approach, the

communication task of the brand is to gain (a)
awareness (b) comprehension (c) conviction (d)
image (e) action. Advertising goals should be
consistent with these communication tasks.
Performance on these counts and projected goals is
compared to evaluate the effectiveness of the
campaign. DAGMAR model has three parts (1)
define advertising goals for effectiveness
measurement (2) understand four sequential path
through which customers pass through –
awareness, comprehension, conviction and action
(3) measure advertising result.
Step by step approach to DAGMAR
1.Define Advertising Goals:
Characteristics of good advertising goals include them being written, measurable involving a starting point,
a defined audience and a time limit. You must know current state before the start of the advertising. You
now set advertising goal which improves the identified attributes status – Increase product awareness from
10% to 30%.
2.Awareness, Comprehension, Conviction and Action

First step in four sequential paths through which customers pass through is awareness where in you make
your target audience aware about your product or new product. Later you make customers understand
what product will do for them (comprehension), features and benefits.
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Post comprehension, it is essential to build a positive attitude to the product which should induce
customers to take expected action which is a step towards buying. Expected action at the customer’s end
only generates revenue for you.
3.Measure Advertising Effectiveness:

Effectiveness can be measured post evaluating result vis-à-vis expectations as actual results can be
compared with goals set. However, you need to know state before the campaign. This may require another
survey if criteria are subjective – awareness, comprehension etc. DAGMAR has utilities like its help in
improvements in advertising and promotional planning process by providing a better understanding of the
goals and objectives. Planners’ efforts were directed towards collective objectives. Focuses advertisers’
attention on the value of using communication based rather than sales-based objective to measure
advertising effectiveness. It helps in less subjectivity and leads to better communication and relationships
between client and agency.
Advantages of DAGMAR Approach5

A major contribution of Colley’s DAGMAR
Benchmarks approach was a specification of what
and Degree
of Change
constitutes a good objective.
Sought
According to Russell Colley, there are
various advantages of well-founded
Concrete
Written objectives. These are:
and
Goal
Measurable
DAGMAR  Be concrete and measurable
approach
 Have a well-defined target
audience or market
 Identify the benchmark and the
Target Specified degree of change
Audence Time frame  Specify a timeframe to
accomplish the objective
TARGET AUDIENCE
 DAGMAR claims the target audience is well defined. A group of potential customers, who have the
highest likelihood of purchasing the product, is the target market. Identifying the target market
includes the process of demographic, geographic, and psychological segmentation. Target markets
can be segmented into Primary and secondary groups.
 Primary markets are the main target audience, on whom the marketing efforts are mainly focused.
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 Secondary markets are the target audience on whom the marketing efforts will focus after the
primary market goals are achieved. After identifying the target audience, the organization devises
objectives for advertising and later the objectives for communication.
CONCRETE AND MEASURABLE
 The objective of communication should be a precise and clear statement of whatever message the
advertiser wants to communicate to the target audience.
 The specification must include all the details and descriptions of the measurement procedure.
SPECIFIED TIMEFRAME AND BENCHMARKS
 A good objective has a specified time frame, during which the objective is to be achieved.
Understanding the specifications enables advertisers to define goals that will yield the best result.
 Setting a specific timeframe assures effective evaluation of results. The timeframe should be realistic
to prohibit skewed results from static marketing.
 Creating the benchmark is essential for an appropriate measurement of the effectiveness of the
advertisement.
WRITTEN GOAL
 The goal should be committed on a paper. When the goals are clearly written, basic shortfalls and
flaws are exposed, it becomes eventually easy to determine whether the goal contains the crucial
aspects of the DAGMAR approach.
OBJECTIVES OF DAGMAR APPROACH
 Persuade a prospect to visit the showroom.

 Growth in market share.
 Improve sales turnover.
 Perform complete selling function.
 Advertise a special reason to buy.
 Stimulate impulse sales.
 Remind people to buy.
 Create awareness about the product and brand existence.
 Create favourable emotional disposition towards the product.
 Impart information regarding benefits and distinctive features of the product.
 Combat and offset competitive claims.
 Correct false impressions, wrong information and other hindrances to sales.
 Aid sales force with sales promotion and selling activities and boost their morale.
 Establish brand recognition and acceptance.
EXAMPLE OF DAGMAR APPROACH
Let’s suppose that an ABC company wants to evaluate the effectiveness of marketing campaign for its latest
product launched. The company starts evaluating the commercial that is designed to persuade potential
consumers through the four stages of the buying process:
1. In the AWARENESS stage, company ABC spreads awareness among the consumers about its new
product launched in the market.
2. In the COMPREHENSION stage, company ABC portrays to its consumers the features and
distinctiveness of the new product and reminds the consumers of the company ABC’s logo and brand
name.
3. In the CONVICTION stage, company ABC attaches the consumer emotionally to the new product so
that the consumer establishes an emotional preference for the company ABC’s brand.
4. In the ACTION stage, company ABC makes sales.
Company ABC then evaluates the success of the marketing effort using DAGMAR. The company measures
that how fast the customer processed through the four stages of the purchase and how many sales were
generated. In cases where the customer is distracted and deviated from buying the product, and the
company doesn’t meet sales goals, the company needs to change its ad campaign.
Advertising is strongly associated with economic cycles across major world economies. The DAGMAR
method is a long-established method of creating effective advertising. The idea behind the method is
to “communicate rather than sell”.
Criticism of DAGMAR
One of the major criticisms is that it relies too much on the hierarchy of effects theory. Customers do not
necessarily pass through the stages in a linear way. Also, it inhibits creativity buy focusing on strategic
aspects. It believes in communication approach and sidelines sales objective approach, which is a basic
reason for which advertisements are released. It is practical only for big corporations who can afford to
establish quantitative benchmarks.
B. Product Life Cycle Approach

Advertising effectiveness varies according to the different stages of product life cycle.
C. Primary and Selective Demand Theory
According to this approach the advertising objective is categorized into two ways:
(a) Informative Advertising
(b) Persuasive Advertising.
(a) Informative Advertising.

This advertising is important when the product is in the pioneering stage and the objective is to build
Primary demand. Primary demand is sought to be created especially by concept selling for a category of
products. Some particular conditions are required necessarily to advertise for creating a primary demand.
The existence of a strong and basic consumer need is the most important prerequisite as advertising cannot
create demand for a new product. It can only stimulate an existing demand. There must be strong buying
motives in existence. Besides this, social trends, design, price, etc. also play a crucial rate at this stage.
For example, the manufacturer of “VIM” initially had to inform potential consumers of VIM Bar’s economic
benefits and many other advantages.
(b) Persuasive Advertising

This becomes important in the competitive stage, where a company’s objective is to build selective
demand for a particular brand. Most advertising falls in this category. Persuasive advertising is undertaken
when a strong primary demand is in existence. The product should be distinctive, its benefits should be
visible and also a strong brand consciousness must be generated.
A good example of persuasive advertisement is that of Philips. To promote its products especially CTVs, it
employed Chennai based ad agency Anugrah Madison. The agency created a spcial campign “Engaveetu
superstar” for the Tamil Nadu market and “maa inti mega star” for Andhra Pradesh Market. IN Tamil Nadu
Rajani Kant is referred to as superstar and in A.P. Chiranjeevi is known as Meg Star. This was followed by
road shows and contests for children.
AIDA: Attention-Interest-Desire-Action6
Inspiring Action with Your Writing
Every day we're bombarded with headlines like these that are designed to grab our attention. In a world
full of advertising and information – delivered in all sorts of media from print to websites, billboards to
radio, and TV to text messages – every message has to work extremely hard to get noticed.And it's not just
advertising messages that have to work hard; every report you write, presentation you deliver, or email
you send is competing for your audience's attention.
As the world of advertising becomes more and more competitive, advertising becomes more and more
sophisticated. Yet the basic principles behind advertising copy remain – that it must attract attention and
persuade someone to take action. And this idea remains true simply because human nature doesn't really
change. Sure, we become increasingly discerning, but to persuade people to do something, you still need
to grab their attention, interest them in how your product or service can help them, and then persuade
them to take the action you want them to take, such as buying your product or visiting your website.
The acronym AIDA is a handy tool for ensuring that your copy, or other writing, grabs attention. The
acronym stands for:
 Attention (or Attract).
 Interest.
 Desire.
 Action.
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These are the four steps you need to take your audience through if you want them to buy your product or
visit your website, or indeed to take on board the messages in your report.
How to Use the Tool?

Use the AIDA model when you write a piece of text that has the ultimate objective of getting others to take
action. The elements of the acronym are as follows:
1. Attention/Attract
In our media-filled world, you need to be quick and direct to grab people's attention. Use powerful words,
or a picture that will catch the reader's eye and make them stop and read what you have to say next.
With most office workers suffering from email overload, action-seeking emails need subject lines that will
encourage recipients to open them and read the contents. For example, to encourage people to attend a
company training session on giving feedback, the email headline, "How effective is YOUR feedback?" is
more likely to grab attention than the purely factual one of, "This week's seminar on feedback".
2. Interest
This is one of the most challenging stages in the AIDA model: you've got the attention of a chunk of your
target audience, but can you engage with them enough so that they'll want to spend their precious time
understanding your message in more detail?
Gaining the reader's interest is a deeper process than grabbing their attention. They will give you a little
more time to do it, but you must stay focused on their needs. This means helping him or her to pick out
the messages that are relevant to him quickly – use bullets and subheadings, and break up the text to make
your points stand out.
3. Desire
The Interest and Desire parts of the AIDA model go hand-in-hand: as you're building the reader's interest,
you also need to help her understand how what you're offering can help her in a real way. The main way
of doing this is by appealing to her personal needs and wants.
Rather than simply saying, "Our lunchtime seminar will teach you feedback skills," explain to the audience
what's in it for them: "Get what you need from other people, and save time and frustration, by learning
how to give them good feedback."
4. Conviction
As hardened consumers, we tend to be skeptical about marketing claims. It's no longer enough simply to
say that a book is a bestseller, for example, but readers will take notice if you state (accurately, of course!),
that the book has been in the New York Times Bestseller List for 10 weeks, for example. So try to use hard
data where it's available. When you haven't got the hard data, yet the product offering is sufficiently
important, consider generating some data, for example, by commissioning a survey.
5. Action
Finally, be very clear about what action you want your readers to take; for example, "Visit
www.mindtools.com now for more information" rather than just leaving people to work out what to do
for themselves.
The Purpose of Advertising

Advertising has three primary objectives: to inform, to persuade, and to remind.
 Informative Advertising creates awareness of brands, products, services, and ideas. It announces
new products and programs and can educate people about the attributes and benefits of new or
established products.
 Persuasive Advertising tries to convince customers that a company’s services or products are the
best, and it works to alter perceptions and enhance the image of a company or product. Its goal is
to influence consumers to take action and switch brands, try a new product, or remain loyal to a
current brand.
 Reminder Advertising reminds people about the need for a product or service, or the features and
benefits it will provide when they purchase promptly
Advertising Budget
One of the difficult marketing decision is to decide how much to spend on promotion mix. Advertising
budget is the amount which has to be spent on advertising to promote product, reach target audience,
generate sale and give reasonable profits to the company.
1. Factors to be taken into consideration while determining the advertising budget

Marketing conditions which will have an impact on the advertising budget must be studied. Marketing
conditions to be watch out for are:
a) the advertising task to be achieved
b) frequency of the advertisement
c) competition and clutter
d) market share
e) product life cycle stage
f) product differentiation
g) support from retailers
h) financial resources.
2. Establishing and Allocating Promotional Budget
Objectives set w/o budget are unrealistic. Budget is always limited in every organization besides that it
needs to have relevance to critical marketing objective. Two budgeting decision are a) establishing a budget
amount b) Allocating the budget.
i. Establishing the budget
Advertising without the promotion is w/o the edge to your knife and promotion w/o advertising is like a
broken knife. Many mangers fail to realize the value of advertising & promotion as they consider as
expenditure and not an investment.
ii. Budgeting Approaches

There are two basic approaches namely a) Top-down approach and b) Built-up approach.
A. Top-down approaches
Budget is fixed and passed on to various departments. Budget is pre-determined w/o any theoretical basis.
This includes following method;
a) The affordable method

Firm needs to compulsorily spend on certain cost heads– production, operations etc. Margin prediction
determines impact on profitability. Organization accordingly decides how much spare money is
available for allocating it to advertising & promotions etc.
b) The arbitrary allocation

Budget is determined based on what is considered as necessary. It is based on management’s ad-hoc
understanding about what can bring revenue.
c) The percentage (%) of sales

Most common and relevant method used by many. Use either past actual data of sale / advertising
budget. Project future sale and determine impact desired and accordingly determine %.
d) The competitive parity

Budgets are set by matching the % advertising to sales ratio of competition.
e) The return on investment

Here advertising approach is considered as an investment. Sales are a result of advertisement seen over
the period of time. Thus return over pre-agreed period over investments made in advertising is
calculated as ROI.
B. Built-up approaches
a) The objective & task method

Process involves establishing the communication objectives first, determining the strategy associated,
determining the tasks needed to be done, determining the costs associated with such tasks. Focuses on
marketing need and results expected.
b) The payout planning

Marketer projects the revenues that a product is expected to return over a period of two to three years.
Cost is associated to generate this revenue including advertising. Armed with this data, marketers
present the period in which project will pay-off. If need to re-adjust, budgets are
Preparation and Methods of Advertising Budget
Methods for Setting Advertising Budget (6 Methods)
Several methods are used for setting advertising budget. Depending upon internal situations of the
company, the suitable method is followed. Every method has its merits, demerits, and applicability.
Commonly practiced methods have been briefly discussed in this part:
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 Parity 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. Other Methods:
There are some other methods used for setting advertising budget. They have been listed below:
i. Arbitrary Allocation Method

ii. Profit Maximization Approach
iii. Incremental Method
iv. Sales Force Opinion Method, etc.
Advertising budget process

There are certain steps which can be followed in creating an advertising budget. They can be explained as
below:
1. Understanding advertising objectives based on the goals which have been set by the company
2. Determine the tasks, ad campaigns which could be done
3. Formulating, evaluating and preparing the breakup of advertising budget
4. Taking approvals form the senior management
5. Allocation of funds for different activities under the advertising budget
6. Monitoring and controlling the expenditure and revising it for better profit
Factors Affecting Advertising Budget7

“Money does matter a lot.”
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.
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. The
market conditions to watch out for are as follows:
 Frequency of the advertisement

 Competition and Clutter
 Market Share of the Product
 Product Life Cycle Stage
1. Frequency of the Advertisement

This means the number of times advertise has been shown with the description of the product or
service, in the granted time slots. So here, if any company needs more advertising frequency for its
product, then the company will have to increase its advertising budget.
2. Competition and Clutter

The companies may have many competitors for its product. And also there are plenty of
advertisements shown which is called clutter. The company has to then increase their advertising
budget.
3. Market Share
To get a good market share in comparison to their competitors, the company should have a better
product in terms of quality, uniqueness, demand and catchy advertisements with resultant response
of the customers. All this is possible if the advertisement budget is high.
4. Product Life Cycle Stage

If the company is a newcomer or if the product is on its introduction stage, then the company has to
keep the budget high to make place in the market with the existing players and to have frequent
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advertisements. As the time goes on and product becomes older, the advertising budget can come
down as then the product doesn’t need frequent advertising.
When the market conditions are studied thoroughly, then the company has to set up its advertising
budget accordingly. For setting advertising budget, there are four methods:
 Percentage of Sales: In this method, the budget is decided on the basis of the sales of the product
from previous year records or from the predicted future sales. This is a pure prediction based
method and best applicable to the companies which have fixed annual sales. But if in case there
is a requirement for more promotional activities then this method has a disadvantage because
there will be decrease in advertisements as the budget is fixed.
 Affordability: this method is generally used by the small companies. Only the companies which
have funds and can afford advertising opt for this method. The companies can go for advertising
at any time in whole year whenever they have money to spend. The amount spent also varies
from time to time as per the advertisements takes place.
 Best guess: This method is basically for newcomers who have just entered the market and they
have no knowledge or say they are not aware of how the market is and how much to spend on
advertising. Thus, this method is applied by the higher level executives of the company as they
are the only experienced people.
Advertising Agency: Function, Selection and Compensation.8

Advertising Agency – Definitions Provided by Philip Kotler, Rozer, Borton and American
Association of Advertising Agency
A firm engaged in providing services of advertisement for clients to create awareness and market for them
is known as advertising agency. These agencies involve people with specialized skills and knowledge who
are well versed in marketing, advertising and consumer behavior. These experts combine their talent to
create advertisement for their clients. Therefore, an advertising agency is a specialized organization helping
its clients to adopt advertising for marketing their goods and services in most effective manner.
According to American Association of Advertising Agency an advertising agency is one –
i. Which is an independent organization.

ii. Which is composed of creative and business people.
iii. Who develop, prepare and place advertisements in media.
iv. Which is for sellers seeking to find customers for their goods and services.
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Philip Kotler opines that “Advertising agency is a marketing service firm that assists its clients in planning,
preparing, implementing and evaluating various activities of advertising campaign.”
Another view expressed by Rozer and Borton is that “Advertising agency is a group of persons who have a
specialization in advertising. It includes ad copywriters, ad designers, media selectors and advisors for
various advertising issues”.
From the above definitions, the common features can be identified as:
1. Advertising agency is an independent business organization.

2. Agency provides services to its clients who are searching customers for their goods and services.
3. Agency employs the experts, researchers etc.
4. Agency performs the functions like planning, implementation of campaign, research, follow up
advertisement, measuring effectiveness of various media for its clients.
5. It charges fees, service charges and commission from its clients.
It is emphasized that an advertising agency is an independent business organization independently owned,

and not owned by advertisers or media or suppliers—which brings to the clients’ problems an outside
objective point of view made more valuable by experience with other clients’ sales problems in other fields.
It is independent of the clients so as to be always an advocate of advertising (seeking to apply advertising
to help clients grow and prosper); it is independent of media and suppliers so as to be unbiased in serving
its clients (the sellers of goods and services).
An advertising agency is composed of creative and business people—the writers and artists, showmen and
market analysts, media analysts, merchandising and research people, advertising specialists of all sorts.
But with all this, they are business people, running an independent business, financially responsible, apply-
ing their creative skills to the business of helping to make their clients’ advertising succeed.
These people develop, prepare, and place advertising in advertising media, seeking in every way they can
to apply advertising to advance their clients’ business. Everything that goes before and everything that
comes after the advertisement is preparation of advertising follow up to help make it succeed. The agency
does this, not for itself, but for sellers’ goods and services. To prepare and place advertising—successful
advertising for the advertiser—is the primary purpose of the advertising agency.
Functions of an Advertising Agency 9

Top 4 Functions of an Advertising Agency
1. Research,
2. Creating Advertising,
9
3. Media Buying and Ad Placement and
4. Providing Ad-On Service
Function # 1. Research:
Advertising agencies carry out various types of researches to facilitate the advertising process. These
research activities relate to consumers, market and the product. Through consumer research, agencies
determine consumers’ perceptions about the product’s strength and weaknesses.
Also, the way a product is positioned or a new product to be positioned in consumers’ mind is being
determined on the basis of research inputs only. The understanding of consumers’ level of awareness, their
attitudes, beliefs and knowledge about the product helps agencies in determining communication
problem(s) and the formulation of appropriate communication strategy relating to the product concerned.
The formulation of communication strategy also depends on the understanding of market dynamics such
as its size, composition, and geographical spread, preferences for the type of media, media reach, the
competitors and their communication strategies relating to the market and so on.
Agencies try to work out the communication strategy in the light of market dynamics so as to have desired
approach to the market and also to negotiate for buying the appropriate media.
Agencies also undertake product related research to develop knowledge for developing creative concepts.
The product knowledge relates to ingredients, quality, features, design and packaging of the product.
Though creative concept is based on product’s strengths relating to these aspects of the product,
developing a creative concept is a matter of creativity.
Mostly, creative process is followed to develop the creative concept which contains five steps:
a. Immersion, which means gathering information and raw material through background research
and immersing oneself in the problem.
b. Digestion, is taking the information, working it over, and wrestling with it in the mind.
c. Incubation involves putting the problem out of one’s conscious mind and turning the
information over to the sub conscious mind to do the work.
d. Illumination is the stage of the birth of an idea—happening of ‘Eureka’ phenomena.
e. Reality or verification is the studying of the idea to see if it still looks good or solves the problem
and then to shape the idea to practical usefulness.
Agencies gather information about consumers, markets, competition, and any other relevant information
both informally and formally to assist in preparation incubation and illumination stages. Formally, proper
research is conducted either by the agency itself, or by the client, or by media or by some other specialist
source.
The agencies provide research based information to creative specialists for use as an input to creative
process. Agencies also provide them the books, trade journals, clippings, newspaper articles, etc.
containing the information relevant to product, market and consumers.
The informal sources of information, on the other hand, include general reading, talking to those who are
involved in product as designers, salespeople, engineers, consumers, listening to what people talk about
the product, experiencing the product and becoming familiar with it, and working in and learning about
clients’ business.
Besides fact finding research on consumers, product and market, advertising agencies are now conducting
psychographic studies to construct the lifestyle or psychographic profiles of product users. Moreover, a
numbers of agencies are now even conducting branding research to help better understand and identify
clients, customers and how they connect to their brands.
Agencies and particularly large agencies with strong research departments have their own research
programs and techniques to conduct qualitative researches such as in-depth interviews or focus group
studies. These qualitative researches provide valuable insights into the early stages of creative process.
Function # 2. Creating Advertising:

It is the core competence of most of the agencies whether large or small in size. The creation of advertising
function includes various activities relating to its writing, designing and producing ads. The copy writers
develop the message copy, its headlines, slogans, tag lines, and body copy.
The art directors carry out the designing of an ad in terms of its colour, contrast and pictures. The
production of the ad as per the specifications given in the layout is done by the producers. Advertising
agencies provide the environment and facilities to these people having specialized skills as it is through
their interactions and elaborative efforts that the creation of advertising takes place.
Function # 3. Media Buying and Ad Placement:

In view of growth in media option/opportunities causing media fragmentation, placing an ad with media
has become one of the important decision requiring whole lot of data based discussions and deliberation.
Agencies role in placing ads with the media goes back to its traditional association with the media.
Being sellers of space in media, overtime agencies have evolved into buyers of space and buy media time
and space on behalf of the advertiser. Being in the business of creating advertising, agencies are generally
more close to media and hold more information and knowledge about media scenario. Because of
specialized skills, agencies are also better equipped to negotiate while buying media time and space.
Function # 4. Providing Ad-On-Services:

Clients now expect from their agencies to provide additional services and not just advertising. This is
another functional area of advertising agencies which includes the provision of services concerning
preparation for printing of sale material, publicity campaigns, other sales materials, sales meetings, etc.
Since clients expect a package solution to their varied communication needs, more and more agencies,
especially large agencies, are getting into the business of providing one-stop-shop offer to their clients.
They either acquire or hire the specialists’ divisions having competencies in regard to various additional
services.
The advertising agency co-ordinates between various specialist divisions and, thus, provides integrated
solution to the communication needs of the client. Overtime, agencies have become the provider of total
communication solutions and not just advertising as a solution to communication needs of the client.
Depending upon the functions performed by the agencies and the services rendered to the client, these
agencies are grouped either as large or small size agencies. The large size agencies are usually the full
service agencies providing the entire breadth of services to the client. Small agencies, on the other hand,
are the specialized kind of agencies which offer only one or few of the services to their clients.
Advertising Agency – Selection of Advertising Agency
Once an advertiser decides to hire an outside agency for the purpose of creating advertising and/or placing
it with media through their media buying facilities, the next most important decision is to select an
appropriate agency. How to select an appropriate agency? What are the criteria to establish agency
appropriateness? How to collect information to establish agency appropriateness?
These are some such questions for which an advertiser needs answer while deciding for an agency. But
there is no standardized procedure and criteria to work out the agency appropriateness and make a
selection decision. Whatever is talked about agency selection is either based on one’s experience of
selecting an agency or is available as a general source of information regarding advertising agencies in India
or elsewhere.
Primarily, the published data available through media and industry circles is an important source of
information for identification and short listing of the agencies. The data contains the information on an
agency’s name, its location, name of the proprietors, advertising turnover, investments, list of clients
handled by the agency and the other national or international affiliations of the agency.
The advertising campaigns released by advertising agencies reflect the creative approach of the agency
and this is considered as one of the basis for agency selection. Advertisers also seek opinions of other
advertisers while deliberating on the decision to select a particular advertising agency. Agencies’
involvement in social and civic work is another good parameter of agency selection.
Moreover, the agencies which are considered actively for selection purposes are asked to
furnish the detailed information regarding:
1. Its size and corporate structure.

2. Organizational set up and number of employees.
3. Profile of key personnel.
4. Services offered by an agency.
5. Terms of business.
6. Accounts held and periods for which they are held.
7. Growth of agency’s billings.
8. Case histories of some campaigns.
In a nutshell, agencies are identified and reached through:
i. Referrals where existing clients of agency refer other clients to the agency.
ii. Presentations where new agencies are invited to make a presentation of their case.
iii. Image and reputation of the agency on the basis of advertising campaigns released by the
agency.
iv. The activities of public relation and publicity undertaken by the agency.
Finally, based on the information collected through various primary and secondary sources, selection of
any one of the agency involves an analysis of information across various factors such as-
a. Growth of the agency in terms of its billing size and growth pattern.
b. Field of industry experience in terms of its versatility.
c. Account turnover in terms of average age of agency clients.
d. Manpower strength and depth of their experience.
e. Agency’s philosophy of operating business, whether rigid or progressive.
f. Agency’s ability to carry out campaign planning which involves analysis and interpretation of all
the facts and conditions affecting marketing problems and their ability to develop advertising
objectives and competitive strategy.
g. Agency’s creative ability to create good ideas.
h. Agency’s ability to do media research and other forms of research.
i. Agency’s ability to produce and supervise all kinds of advertising and promotional material.
Although, the selection criteria are comprised of varied factors, but this is more of a subjective nature as it
requires one’s judgment to decide about their appropriateness to select an agency.
Other factors to be considered while Selecting an Advertising Agency10
The Advertiser looks for an advertising agency whose services and expertise meets his requirements.
Following factors should be considered while selecting an advertising agency: -
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Services offered by Ad-agency - There are different agencies provides different services, some provides
all the services, some provide selected services, some provides only media services. It depends on the
requirement of advertiser whether he need a fulls service agency, creative boutique, media buying service
agency, or a sweet shop.
Experience of Agency - An experienced agency performs better then a new agency because it is familiar
with different components of marketing environment like- competitors' policies, taste of consumer,
income of consumer, consumer responses, fashions and trends, reputation of different media etc.
Location - A major factor to be considered while selecting ad-agency is location of office of agency. A
considerable amount of communication is required at different level of ad planning, creation and
execution. So, a local or near by ad-agency should be preferred which is easily accessible.
Size of Agency - There are both large size agencies and small size agencies, both have their own
advantages and disadvantages. Large agencies serves big clients, provides wide variety of services, and
charges higher but, cannot give personal attention because of having large number of clients, also cannot
give much attention to small clients because of having large number of big clients.
Competitors' Agency - Agency which is working for competitors must be avoided otherwise agency will
not prepare ads which help the advertiser to take an edge over competition.
Image of Agency - While selecting ad-agency the advertiser should inquire the image, integrity, ethical
standards, and relations of agency with its clients.
Creativity and other skills - Ad-agency must be creative enough to generate new ideas to gain the
attention of target audience.
Rates Charged by Agency - The rates of agency must suit the pocket of client. Advertiser should select
agency whose rates are reasonable and within the ad-budget.
Financial Strength of Agency - A financially strong ad-agency have better turnover and better contacts
with media owner, and afford better infrastructure, well-equipped-ad labs, and quality staff.
Past Records of Agency - It is necessary to know who were the past clients of agency, how long were
they with agency, why they left the agency, brand image of products of clients, etc.
Advertising Agency – Remuneration: Commission and Fee System11
11
Agency remuneration is an important aspect of decision making while arranging for an outside advertising
agency. It is the underlying factor which determines the relationship between the agency and the
advertiser.
There are two basic systems of compensating agency for its services:
I. The commission system and
II. The fee system.
I. Commission System:
This system of compensating advertising agency can be traced back to the earlier times when the agencies
used to work as agents selling media time and space on behalf of the media houses. They were paid
commission on their sales and the rate of commission used to be 15 per cent of sales value. The same
practice is continuing even today with the only difference that 15 per cent commission on media bills is
now borne by the advertiser for whom the agencies work and buy media space and time.
It is the advertiser who pays the agency 15 per cent commission on the amount billed for buying media
time and space. The manner in which the payment is done can be explained with an example. If the agency
places a half page ad with a newspaper costing say Rs. 100,000, the newspaper house would bill the agency
for Rs. 85,000, i.e. 15 per cent less for agency commission.
The agency in turn bills the client for Rs. 100,000 and pays Rs. 85,000 to media and retains Rs. 15,000 as its
commission. This is the gross income for the agency and after deducting the cost incurred in preparing,
planning and placing the ad and certain other overhead expenses, the balance figure constitutes its net
profit. Advertisers do not pay the commission directly to the agency. Instead, it occurs indirectly as an
agency is allowed by the media to deduct 15 per cent of the billed amount as a functional discount for
performing various activities benefiting the media.
Beside commission, agencies also receive direct payment from the advertiser. This payment occurs for the
cost of material and for the outside services like television production facilities hired for producing the ad.
Usually, agencies bills the client for cost plus 17.65 per cent of material and services.
Evaluation of Commission System:
Although 15 per cent commission system is the traditional way of compensating the agencies and is much
in practice also, yet it is evaluated time and again as there are doubts and controversies in the working of
this system. Therefore, as a client an advertiser always tries to make a move towards other compensation
procedures, whereas agencies themselves are always in the favour of commission system.
First, the commission system of compensating agencies is tied with media cost and the more the client
spends on media, the more the agency is likely to get by way of its commission. Therefore, agencies usually
tend to avoid non-commissionable media and suggest/buy the expensive media, disregarding its
effectiveness.
Secondly, there is a lack of equitability between the amount of commission charged and the services
provided by the agency. The fixed percentage of commission has no relationship with the cost of producing
ads and as such agencies also do not follow the cost accounting system of matching revenue with
expenditure.
However, agencies being the proponents of commission system provide counter arguments and justify the
commission system. They consider it as the most flexible system where competition is more on non-price
basis. In order to compete, agencies agree for adding more services though usually for big advertisers only.
Also, the fixed percentage of commission is proposed to be compared with ad effectiveness, i.e. in terms
of media capacity to reach a number of audiences, and not the cost of producing ads.
After globalization in the 90’s, unbundling of full service agencies resulted into the onset of media buying
agencies. These agencies offered for optimizing client’s media spend by negotiating better deals with the
media. It was then that several companies have started questioning the sanctity of 15 per cent commission
as it was only out of industry tradition that 15 per cent rate of commission has become a practice and in
no way this constitutes the industry norm.
This clearly meant that 15 per cent commission could be shared as- 10 per cent for the media buyer and 5
per cent for the agency in a few cases, and 12.50 and 2.50 respectively in most.
However, the industry experts feel that the departure from 15 per cent commission may cause squeezing
of an agency’s already tight margins and will negatively affect the agency’s capacity to provide various
services including specialized ones. So, the problem in actual is not that of 15 per cent rate of commission,
instead it is like paying but not getting good work, or not rewarding when really good work is done. The
more concerning issue, therefore, is how to keep the agencies motivated and well remunerated.
II. Fee Based System:
In view of clients’ uneasiness with the commission based system, the trend is more towards the fee system,
where clients pay to their agencies either the fixed negotiated fee amount or some combination of fee and
commission. The fee is fixed on the basis of estimates of total number of service hours in all the
departments required for creating advertising.
The fee is determined after multiplying total hours with hourly rate and 25 per cent is added further to
cover the overhead cost and to provide for agency margins. Either during or at the end of the year, the
estimated fee is adjusted for the difference between estimates and the actual cost of creating advertising.
In case of commissionable media, the client is billed for negotiated or published rate minus 15 per cent as
agency commission, which is credited against the fee. If there is any discrepancy, the balance is made up
either by the agency or the client as per the requirements of the situation. Cost of supplies, any material
and services procured from outside the agency are billed to the client at actual cost.
Evaluation of Fee System:

The advantages of fee system or fee plus commission system are many which include:
1. The fee system is directly related to the services being provided. Accordingly, the agency can
easily tailor their services to adjust with client’s needs. The clients are also more assured of being
served appropriately as they are likely to get what they have paid for.
2. Since the basis to remuneration are the services and not the media cost, the possibility of
agencies getting biased towards expensive commissionable media is least in the fee system.
3. The agencies also stand to gain in the fee system as there is more stability and assurance of
getting adequately remunerated for the services being offered. As compared to commission
system, fee system does not require on the part of agency to provide any kind of justification for
the services being rendered.
The disadvantages of Fee System Include:
1. Competition among the agencies is likely to be more price based rather than service based.
Whereas in commission system, agencies tend to provide quality services in order to justify the
amount of 15 per cent commission.
2. The fee system works on the basis of ‘the lower the fee the better it is’ concept and the quality
of services is likely to suffer.
3. Agencies also, at times, tend to loose as they might get into the situation of doing more work
for the client than is needed. This results into over servicing the client for the same fee level.
4. The determining of fee structure on the basis of an estimation of the number of hours to be
worked might lead to over indulgence of the client in agency’s internal operations. And this may
tend to harm the client-agency relationship.
5. Many agencies and marketers find the entire process of developing a fee based system too time
consuming and complex.
6. Although fee system is considered a better way of making payments, it requires a change in
mind sets and training to the people on how to do it. This is particularly true in the context of Indian
ad industry.
Cost Plus Agreement:

This is another technique of remunerating the agency for their services. The basis for cost plus agreement
system is also the services or the work done but with the difference that the cost plus system requires the
agency to keep detailed record of the services and the cost it incurs in rendering those services to the
client.
The cost of overhead expenses and the mark up for profit are added further to the cost of services to
determine the amount finally billed to the client. Clients prefer the fee and cost plus basis of remuneration
due to the transparency of these systems. The clients can work out easily what they are paying and what
they are getting in the form of services.
The agencies, however, find these systems more difficult to operate as either they require detailed
accounting of cost being done with utmost care or the accurate estimation of service hours. And with such
systems of remuneration the process of bidding advertiser’s account become more tedious.
Since, the remuneration system is tied either to services or the cost of services it tends to works against
the higher level of creativity to prevail while creating advertising and placing it with the media.
Performance Linked Remuneration:

In view of the problems with both commission and fee/cost based system and also that clients have
become more demanding for accountability on the part of their agencies, the move is now more towards
performance based remuneration. Instead of services to be offered agencies are being tied to their
performance, i.e. how well they meet their pre-determined performance goals.
Depending upon the situation these performance goals are usually determined in terms of measures such
as sales, market share, quality of creative work done and so on. To the extent the performance goals are
fulfilled, agencies are paid either through commission, or fee, or bonus, or incentives or some combinations
of these.
From agency’s point of view the move away from commissions is inevitable and has far reaching
implications for agency business. Agencies, especially the large agencies, aim for a satisfaction of total
communication needs of the clients. But they are finding it difficult to avail the growth opportunities
brought out by the other specialized disciplines as a solution to satisfy total communication needs of the
clients.
With the squeezing margins and the rising overheads and other expenses, these agencies feel the growing
business propositions as unviable for them and have to get restricted to their low margin business of
advertising.
In such situations agencies plan to respond by strengthening out their traditional operations, collaborating
with others to bring together their efficiencies and so to have benefits of scale by bidding out business
from many advertisers. Thus, instead of margin, volume of business becomes impetus for their growth.

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BBA-301: ADVERTISING MANAGEMENT (Mo.Tu.We.

Advertising budget: Objectives, preparation and methods of advertising budget.

What Is Advertising Budget?2

Understanding Advertising Budget

Advertising Objectives & Budgeting3

Importance of Promotional Objectives

a) Objectives serve as a communications and coordination devise

b) Objective provide a criterion for decision making

c) Evaluation of advertising effectiveness

Classification of advertising objectives

Types of Advertising Objectives

Examples of SMART objectives

 Sales – Achieve the given target in a specified time period.

Various Approaches for Setting Advertising Objectives4

A. DAGMAR Approach to Objective Setting

According to DAGMAR approach, the

2.Awareness, Comprehension, Conviction and Action

3.Measure Advertising Effectiveness:

Advantages of DAGMAR Approach5

CONCRETE AND MEASURABLE

SPECIFIED TIMEFRAME AND BENCHMARKS

OBJECTIVES OF DAGMAR APPROACH

 Persuade a prospect to visit the showroom.

EXAMPLE OF DAGMAR APPROACH

B. Product Life Cycle Approach

(a) Informative Advertising.

(b) Persuasive Advertising

How to Use the Tool?

The Purpose of Advertising

1. Factors to be taken into consideration while determining the advertising budget

i. Establishing the budget

ii. Budgeting Approaches

a) The affordable method

b) The arbitrary allocation

c) The percentage (%) of sales

d) The competitive parity

e) The return on investment

a) The objective & task method

b) The payout planning

Commonly practiced methods have been briefly discussed in this part:

1. Percentage of Sales Method:

3. Competitive Parity Method:

4. Affordable or Fund Available Method:

5. Expert Opinion Method:

i. Arbitrary Allocation Method

Advertising budget process

Factors Affecting Advertising Budget7

 Frequency of the advertisement

1. Frequency of the Advertisement

2. Competition and Clutter

4. Product Life Cycle Stage

Advertising Agency: Function, Selection and Compensation.8

According to American Association of Advertising Agency an advertising agency is one –

i. Which is an independent organization.

1. Advertising agency is an independent business organization.

It is emphasized that an advertising agency is an independent business organization independently owned,

Functions of an Advertising Agency 9

Function # 2. Creating Advertising:

Function # 3. Media Buying and Ad Placement:

Function # 4. Providing Ad-On-Services:

Advertising Agency – Selection of Advertising Agency

1. Its size and corporate structure.