1.1.

ADVERTISING BUDGET
1.1.1. Introduction
Budget is quantitative expression of future plan of activities. It is a future plan of activities expressed in terms of currency/rupees. It is prepared for a fixed period of time. Advertising budget is a financial document that shows the total amount to be spent on advertising and lists the way this amount is to be allocated. It is a translation of advertising plan into money to be spent on advertising. It is an estimation of total amount to be spent on advertising during a given period of time for achieving marketing objectives. It involves allocation of a portion of total marketing resources to advertising functions of a firm. An advertising budget shows how much amount is to be spent on advertising and how this amount will be allocated among different media, sales territories, products, selling-activities, etc. It states the proposed advertising expenditure and serves as a decision-making tool for the management while allocating available funds to the various advertising functions and related activities of the company. Advertising budget and its process is similar with the Sales Promotion budget and Integrated Marketing Communication (IMC) budget. All three terms can be used interchangeably also due to close similarity. Advertising budget is prepared by Advertising Manager in consultation with Marketing Manager of the company. But in small business organizations, which do not have separate advertising department, the responsibility of preparing ad-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”.

1.1.2.

Features of Advertising Budget

The features of advertising budget are as follows: 1) Advertising 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 Advertising Manager. It is approved by top management for its implementation, 4) It shows the plan of allocation of available funds to various advertising activities, 5) It affects the selection of media, selection of advertising agency and selection of message source (model for advertisement), 6) Its size depends on various internal and external factors, and 7) It is a limiting factor which determines the size of advertising campaign.

1.1.3. Advertising Budget as a Concept of Investment
Advertising 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 advertising attracts customers immediately; they buy the product when they listen to or view the advertising message. This expenditure is known as revenue expenditure. Some expenditure is incurred on building the image and reputation. The effects of advertising are realized gradually over a long period. This expenditure is capital expenditure or investment. The expenditure on advertising 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 advertising purpose. Advertising expenditure is a capital investment when it is incurred to build the image, goodwill and reputation of product and company; and this results in a gradual increase in the sales, although the expenditure is considered as revenue expenditure in the accounting entry. It is an outlay or expenditure made today to achieve benefits in future. This expenditure is known as capital investment although it is assigned under the revenue budget but it is not accepted as a capital budget.

1.1.4. Factors Influencing the Size of the Advertising Budget
Following factors affect the size of advertising budget:

3) Product Class: Talking of only consumer goods. they fatter their budgets beyond limits. counter acting competition. 4) Stage in the Product-life Cycle: Every product has its life-cycle consisting of four phases. The economic system faces brisk and slack phases which are referred to as boom and slump phases of business cycle. improving dealer relations. dispelling the likely misunderstandings and so on. These objectives are – bringing about increase in sales. Even if it decides to spend. and therefore. a new company that has not introduced itself will sweat in introducing its products. T. reaching inaccessible consumers. majority of the companies cut back the advertising budget and during the period of boom conditions. On the other had. People readily accept the new product in the light of its past dependable performance. supporting sales force. it calls for the heaviest doses of advertising. it is the price appeal that works than the advertising strategy. the fashion goods require less advertising as the buyers can judge the qualities of these products themselves in person while they hop from shop to shop. During the growth stage. expanding industry’s sales. growth. When a new product is introduced. entering a new market. 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.V sets. they require a large advertising expenditure because of their intensive distribution and heavy dependence on mass advertising to sell in advance to the prospects before they shop. these have been classified into three categories. On the other hand. Hence. the funds spend are really substantial. This has been because. for a small company. shopping and specialty. kitchen-wares and the like warrant heavy doses of advertising and personal selling efforts. 5) Prevailing Economic Conditions: The economic activities are not always the same. Services goods such as automobiles. introduction. the budget gets blown-up. the business community thinks advertising as recurring expenditure than an investment. The extent of coverage is influenced very much by the nature of the market enjoyed by the products. say. maturity and decline. 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. In case of convenience goods. introduction of new products. On the other hand. 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 advertising budget. the advertising funds will be quite substantial and the desired effects or results can be brought about easily. . namely. During the sour economic conditions. It is the question of reaching a target audience through different media and media vehicles. 2) Coverage Expectations: Advertising coverage implies the number of persons to be reached. only 3 percent of its sales. namely. It is a particular sales objective or the set of objectives that shapes the advertising budget. cooking ranges.Factors Influencing the Size of the Advertising Budget Objectives to be Attained Coverage Expectations Product Class Prevailing Economic Conditions Age of the Company Size of the Company Competitive Activities Funds Available Approach to Advertising Stage in the Product-life Cycle 1) Objectives to be Attained: How much the company is going to spend is determined by the objectives to be attained. convenience. Objectives act as the sheet anchor and the standards for advertising performance. building a brand preference. washing machines. when the product reaches the stage of maturity or saturation and the stage of decline. However. the advertising spending gets reduced considerably. fridges. building up goodwill.

4) Approval: After preparing advertising budget. Main advertising objectives can be to achieve the desired level of sales. 1. then it will pass the budget. Process of Advertising Budget Advertising budget is prepared by advertising manager in consultation with marketing-manager of the company. These objectives should be clearly defined in quantitative Determining Tasks to be terms so that amount of advertising budget can be decided for achieving performed to Achieve Advertising Objectives these objectives.8) Funds Available: An absolute limit is put on the advertising budget by what a company can afford irrespective of its age and size. to enhance market share by specific percentage. certain amount in the form of provision for contingencies is added to the total cost. To keep the budget flexible. It will also ensure that all the required activities to achieve advertising objectives have been covered and the rates/cost of various activities is competitive. selection of media. they are of no avail as they cannot be realized as funds are not available. Most of the companies use their competitors’ budget pattern as their model for budget purposes. designing of advertisement copy. timing of advertisement. This requires a good knowledge of various activities of an effective advertising campaign. 10) Approach to Advertising: The amount to be spent on advertising is also depending on the way in which it is looked upon.1. Top-management can impose ceiling on proposed budget and send it back to budget-committee for necessary review. deciding frequency of advertisement. strategies. Traditionally. Thus. profits to the firm and the satisfaction to the consumers. to develop preference for our product and to convince the customers to buy our product. it is sent to top-management through marketing manager for necessary approval. . These tasks may include. If it finds the budget justified and within affordable limit. Total cost of all such activities is the amount required for advertising-budget. need based and justified. 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. 3) Preparing Advertising Budget: After identifying various activities to be done to achieve advertising objectives. In large organizations.11: Process of Advertising Budget to achieve the advertising objectives. Top-management will see if the budget is affordable. reviewed and scrutinized by high-powered-budget committee before submitting it to the top-management for final approval. etc. The success of the advertiser rests on the strategic approach and spending. it has been accepted as the current expenditure like any other selling expenditure. this proposed ad-budget is evaluated. selection of advertisingagency. Finance is a major key factor or principal budget factor that dictates the size of the advertising budget. activities. however. However. 2) Determining Tasks to be Allocation of Advertising Budget Performed to Achieve Advertising Objectives: After identifying advertising-objectives. While determining the activities to be performed the advertiser keeps in mind the activities done last year and activities of competitive concerns. functions to be performed Figure 2. After approval by budget committee. The advertising budget process involves the following main steps: 1) Setting Advertising Objectives: Before deciding on advertising Setting Advertising Objectives budget. it is presented before topmanagement. the advertising manager must be clear about advertising objectives. 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. It is possible only when the advertiser knows –How much is his competitor spending? What is the format of his spending? What is his strategy? And so on. the next step Monitor and Control is to determine tasks. These objectives will help the advertising manager to determine Approval and to allocate the ad budget. 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. the next step is to find the cost of all such activities.5. The advertising manager has really wonderful ideas to increase the sales. Budget committee will ensure that proposed budget will be effective enough to achieve advertising objectives. Preparing Advertising Budget to increase awareness regarding product and its uses. quantum of space to be taken in print media. now-a-days.

and the relationship of communication expenditure with sales. The logical process of arriving at the communication budget is inspired by the marginal analysis rooted in economics. the budget should have flexibility to accommodate sudden changes in the market. then corrective-actions are taken and responsibilities are fixed to ensure cost control over advertising-budget. In case actual expenditure is more than planned expenditure. a firm would continue to spend advertising/promotional dollars as long as the marginal revenues created by these expenditures exceeded the incremental advertising/promotional costs. As shown on the graph. Advertising-allocation depends upon company’s policies. etc. one would conclude the appropriations were too high and scale down the budget. media. with the latter taken as a function of the former: 1) Marginal Analysis: As advertising/promotional expenditures increase. nature of tasks required to achieve advertising objectives.12: Marginal Analysis . 1. promotional element will receive how much of the amount of funds appropriated. the next step is to allocate it. In control.5) Allocation of Advertising Budget: After the budget is approved by the top management. Sales (`) f(A) = Sales A = Advertising/promotions expenditures Mf(A) = Gross margin Fixed cost of advertising Advertising/ Promotions (`) A P = Mf(A) – A = Profit Figure 2. It involves determining which market. Theoretical Approaches to Budget Setting There are three important issues need to look over before making advertising budget decisions: 1) Economies of Scale: Is there some relevant range in which increments of advertising yield increasing returns? 2) Threshold Effects: Is there some minimum level of exposure that must be exceeded for advertising to have a discernible effect? 3) Interaction Effects: Does advertising interact with each element of the marketing mix. sales. product. to produce effects that are greater than the sum of their separate effects? The answers to two of these questions can be found in the conceptual framework of the models discussed below. Figure 2.6. While allocating the advertising budget to different activities/territories/products. product items. Using this theory to establish its budget. a higher budget might be in order.12 graphically represents the concept of marginal analysis. Allocation means dividing the advertisement budget on different products and activities. but then they level-off. Budget allocation should not be very rigid. Monitoring and control of ad-budget is necessary to make maximum-utilization of funds. Advertisement effectiveness is monitored and evaluated in the light of the budget appropriated. competitors’ strategies and change in other components of marketing environment. company’s promotional plans. market size. Advertising manager should be authorized to make necessary modifications in allocation of advertising-budget. and gross margins also increase to a point. etc. to reduce wastage in ad-expenses and to increase efficiency in various advertising activities. advertising research. If the sum of the advertising/promotional expenditures exceeded the revenues they generated. competitors strategies. sales-territories.1. the optimal expenditure level is the point where marginal costs equal the marginal revenues they generate (point A). actual expenditure is compared with planned expenditure. Profits are shown to be a result of the gross margin minus advertising expenditures. stage of product life-cycle. it is essential to have an adequate monitoring and control over it. Advertising budget is allocated on various product-lines. especially personal selling. If revenues were higher. 6) Monitor and Control: After allocation of advertising budget. charges of advertising agency.

certain weaknesses limit its usefulness. it has been almost impossible to establish the contribution of advertising and promotion. One reason for this strategy is that it is often difficult. These weaknesses include the assumptions that: i) Sales are a Direct Measure of Advertising and Promotions Efforts: The fact that the advertiser needs to set communications objectives that contribute to accomplishing overall marketing objectives but at the same time they are different. to demonstrate the effects of advertising and promotions on sales. if not impossible. . Using sales as a direct measure.Assumptions of Marginal Analysis While marginal analysis seems logical intuitively.

complex. Environmental factors may also affect the promotional program. Budgeting under this model suggests that fewer advertising dollars may be needed to create the optimal influence on sales. Initial outlays of the advertising budget have little impact (as indicated by the essentially flat sales curve in range A). or controversial problem in marketing than measuring the influence of advertising on sales”.13 b). the effects of advertising quickly begin to diminish.12 shows sales leveling-off even though advertising and promotions efforts continue to increase. attitude change. This incremental gain continues only to a point. While the economic approach to the budgeting process is a logical one. i. Incremental sales Advertising expenditures Figure 2. This model suggests a small advertising budget is likely to have no impact beyond the sales that may have been generated through other means (e. “There is no more difficult. Almost all advertisers subscribe to one of two models of the advertising/sales response function: the concave-downward function or the S-shaped response curve. and while the bottom-line may be to sell the product. “Looking for the relationship between advertising and sales is somewhat worse than looking for a needle in a haystack”. According to David Aaker and James Carman. For those who may be potential buyers. advertising and promotional efforts begin to have an effect. (the beginning of range B). After a certain budget level has been reached. each additional ad will supply little or no new information that will affect their decision. leading the Marketing Manager to assume the advertising was or was not effective when some other factor may have helped or hindered the accomplishment of the desired objectives. Thus. Marginal analysis is seldom used as a basis for budgeting (except for direct-response advertising). its incremental value decreases. to try to show that the size of the budget will directly affect sales of the product is misleading. as shown in figure 2. while those less likely to buy are not likely to change as a result of the advertising.According to Frank Bass. and other communications objectives are often sought. However.e. i) Concave-Downward Function: After reviewing more than 100 studies of the effects of advertising on sales. The logic is that those with the greatest potential to buy will likely act on the first (or earliest) exposures. because at the beginning of range C additional expenditures begin to return little or nothing in the way of sales. Sales are not the only goal of the promotional effort. A more logical approach would be to examine the impact of various budgets on the attainment of communications objectives. these objectives may serve as the basis on which the promotional program is developed. as the amount of advertising increases. ii) Sales are determined Solely by Advertising and Promotion: This assumption ignores the remaining elements of the marketing mix – price. and distribution – which do contribute to a company’s success. interest. ..g. the difficulties associated with determining the effects of the promotional effort on sales and revenues limit its applicability. Thus. according to the concave-downward function model. which projects an S-shaped response function to the budget outlay (again measured in sales).. The relationship between advertising and sales has been the topic of much research and discussion designed to determine the shape of the response curve.13 a. product.13 a): Concave-Downward Response Curve ii) S-Shaped Response Function: Many advertising managers assume the S-shaped response curve (figure 2. 2) Sales Response Models: The sales curve in figure 2. as additional increments of expenditures result in increased sales. Awareness. Julian Simon and Johan Amdt concluded that the effects of advertising budgets follow the microeconomic law of diminishing returns.

Budgeting Methods used for Fixing Ad Budget The various budgeting methods used for determining the ad budget takes several forms as shown in figure below. 1. measurement problems. Some empirical evidence indicates the models may have validity. availability of funds.1. etc. the amount to be appropriated for advertising is arrived at by multiplying the value of past year’s sales or projected sales for the budget period with a pre-determined percentage. Even though marginal analysis and the sales response curves may not apply directly. stage of product life cycle. more does not necessarily mean better: Additional dollars spent beyond range B have no additional impact on sales and for the most part can be considered wasted.13: Advertising Sales/Response Functions Weaknesses in these sales response models render them of limited use to practitioners for direct applications. As with marginal analysis. and so on – limit the usefulness of these models.1.7.7. level of competition. amount spent on advertising by competitors. At the other extreme.1. one would attempt to operate at that point on the curve in area B where the maximum return for the money is attained. Some companies like mining . Percentage of Sales Method Under this method. At the same time. These ad budgeting methods are also termed as the types of ad budget. Incremental sales Range A Range B Range C b) S-Shaped Response Function Figure 2. Advertising Budget Amount = Past Year’s Sales or Anticipated Sales × Pre-determined Percentage The percentage depends upon many factors like nature of product.word-of-mouth). keep in mind the purpose of discussing such models. they give managers some insight into a theoretical basis of how the budgeting process should work. Many of the problems seen earlier – the use of sales as a dependent variable. Budgeting Methods for Advertisement Percentage of Sales Method Competitive Parity Method Objective and Task Method All you can Afford Judgment Method Increase over Last Year’s Budget Return on Investment Method Quantitative Methods Experimental Approach 1.

it may result in higher sales and if advertising expenditure is decreased it may result in decrease in sales. Advertising expenditure should be related to sales volume the advertisement is expected to produce. Under this method. second company will spend less on advertising.. The sale of first company is ` 50 lakhs and sale of other company is ` 40 lakhs. i. the appropriation to advertising budget should be more to overcome the problem of decreasing sales. But the fact is that advertising affects sales. 2) Flexible: The advertising appropriation does not remain fixed. But in reality. Some companies take future sales as a basis for advertising-budget. specific amount of rupees is allocated to the advertising budget for each unit sold. 3) Baseless Results when Sales are Declining: This method gives very dangerous results in a case where sales are declining. as per this method advertising budget would be less whereas in reality. appropriation of advertising will be high. But in reality. For example. Merits of Percentage of Sales Method 1) Simple: This method is simple. As per this method if sales are high. 2) Arbitrary: The percentage on sales is fixed arbitrarily and not scientifically. 4) Satisfactory: Since this method directly relates advertising expenditure to sales. Now as per the need. 4) Considers Advertising Expense as Dependent Variable on Sales: This method considers advertising as result of sales. steel-companies appropriate 1% to 2% of sales for advertising budget. It fluctuates directly with sales. So in this method. A company with fewer sales should spend more on advertising so that it can push up its sales. if sales of a company are ` 20 lakhs in first year and ` 16 lakhs in second year. then according to this method appropriation to advertising will decrease by same percentage. workable and easy to understand. it seems to be very satisfactory to many advertisers. Another base followed in this method is ‘unit of sales’. this method considers advertising as a . In such a case. sales affect advertising expenditure. If past or projected sales are high. If sales are low. There is no scientific method for fixing this percentage. It is useful in the advertisement of specialty goods of high-unit-price. But it is very difficult to make reliable and accurate estimate of future sales. it suffers from some weaknesses which are as follows: 1) Illogical: It is illogical method because as per this method. the company with more sales will spend more on advertising and the company with fewer sales will spend less on advertising. By doing so. the need is just opposite to it. Here past sales or future sales can be taken as base for determining ad-budget.e.companies. the second company should spend more than the first company so that it can increase its sales. advertising budget is decided on the basis of level of sales. 3) Prevents Advertising Wars: It helps the industry in preventing advertising wars because advertising expenses are proportionate to market share in sales. the appropriation of advertising will be high. Future sales will probably be more than past sales as a result of advertising. there are say two similar companies in the same industry. For example. It is also named as fixed-sum-per-unit of product method. while consumer-productcompanies like cosmetic-companies appropriate 30% to 40% of sales for advertising. Hence. But taking sale of past years may be wrong as previous year’s sales may not be realistic forecast of future sales. company should spend more on advertising so that it can regain its earlier position and can reverse the trend of declining sales. Companies with more sales spend more on advertising and companies with fewer sales spend less on advertising. The past sales may be of immediate previous year or average sale of preceding two or three years. advertising efforts are related to future needs and future conditions. Demerits of Percentage of Sales Method Although this method is very popular method of framing advertising budget. If advertising expenditure is high. It is based on the assumption that a specific amount of advertising is required for marketing each unit. But as per method of percentage of sale. appropriation to advertising will be low.

7) Ignores Other Important Variables/Factors affecting Advertising-Budget: In this method. So it is logical to decide advertisement budget on the basis of budgets of competitive concerns. It is also assumed that competitors have similar marketing problems and environment. So considering advertising expense as a dependent variable on sales is wrong. Thus. this method is very popular and is widely used. 3) Logical: The purpose of advertising is to save its market share from competitors and to increase its sales. These are as follows: 1) Spend the same rupee amount on advertising as major competitor does. competitors might have made their ad-budgets in a haphazard manner. Here advertising is taken as a defensive tool and not as offensive tool to achieve marketing-objectives. Competitive parity budgets can be determined in several ways.‘result of sales’ whereas the fact is that ‘advertising results in sales’. Despite the above weaknesses and criticism. Competitive Parity Method It is a traditional approach in which advertising budget is framed in such a way that our company is at par with competitors in spending money on advertising. 3) Spend the same percentage of sales on advertising as the average of entire industry. 2) Spend the same percentage of sales on advertising as major competitor does. Merits of Competitive Parity Method 1) Considers Level of Competition: This method is most appropriate where competition is very rigorous. 6) Not Much Useful for Long-Term Advertising Programmes: In this method.1.7. Under this approach. i.2. In the introduction stage. Similarly the companies which are spending very less on advertising in comparison to their rival companies become alert about their meagre ad-budget. It involves collection of relevant data about competitors advertising appropriation. advertisers spend as much as their competitors spend so that their company is not at any disadvantage. 1. sale is the basis for appropriating advertising budget. sales are very low and if the percentage of sale method is used for appropriating the budget. Under such circumstances.. then company will appropriate very less amount for advertising but a new product needs heavy initial advertising expenditure to generate sales and to be popular. management has to consider the advertising appropriations of competitors to keep itself in line with its competitors. stage in product life-cycle. available opportunities. etc. then our market share may decline. But in reality. advertising budget is decided on the basis of sales only and other important factors affecting the advertising budget are ignored. . comparison with other rivals makes the company alert of its excessive or meagre spending on advertising. It also assumes that competitors have framed their advertisement budgets correctly and rationally. So no longterm advertising programme can be prepared. level of competition. All of these alternatives have one feature in common. This method is based on the assumption that the company in question knows what competitors are doing and what competitors are planning to do. But sales vary from year to year and from market to market. sudden changes in marketing environment. Demerits of Competitive Parity Method 1) Wrong Assumption: This method is based on the assumption that competitors are always right and rational in making their ad-budget. If we spend very less on advertising than our competitors. the actions of competitors largely affect the company’s advertising budget. 2) Check on Excessive or Meagre Budget: Comparison of advertising budget with that of rival companies puts a check on excessive advertisement budget.e. like-market needs. 5) Baseless Results in Introduction Stage of Product-Life-Cycle: This method gives inappropriate results if the advertiser has introduced a new product in the market. It assumes that the promotion needs of the organization are the same as that of competitive concerns or rivals.

5) Suitable for Planning in the Long-Run: This method is based on both short term and long term advertising objectives. competitive parity method which considers only short term factors. So for preparing advertising budget in case of new products.e. 2) Goal Oriented: This budget gives due consideration to advertising objectives. when a company launches a new product. It is a goal-oriented method of appropriating the budget. It is based on setting advertising objectives and identifying the tasks to be performed to achieve these objectives. The advertiser tries to get information about his competitor’s advertisement budget by indirect sources. it is better than competitive parity method. But it is not an easy task to collect information about competitor’s ad-budget. In this method advertising amount is not decided arbitrarily. 1. Then different tasks to be performed to achieve these objectives are identified. etc. So this method is more suitable for new products as it is based on zero base budgeting. etc. e. 3) Co-Ordination among Different Advertising Activities: In this method all advertising activities and tasks are decided in advance. First of all. But the promotional needs are never same. it will have to compete with competitors’ already well established brands. etc. functions. advertising objectives are determined.2) Non-Availability of Information: The Company using this approach needs information about rival’s- advertising-budgets. the advertiser decides advertising budget as per the needs rather than linking budget with competitor’s budget or past sales. all activities and tasks are enlisted to achieve advertising objectives. this method is more appropriate than other methods. sales-level needs. Tasks are shortterm functions to be done to achieve these objectives. from their employees.. so better co-ordination can be maintained among various advertising activities and tasks. 3) Different Promotion Needs: This method is based on wrong basic assumption that all firms in an industry have same opportunities for advertising and same promotional needs.” Objectives of advertising are long-term in nature. which are as follows: 1) Ill-Defined Objectives: If the objectives of advertising are not defined correctly. This method is more suitable for long term planning. The promotion-needs of these two brands are totally different. 4) Ignores other Variables affecting Ad Budget: This method considers only the advertising appropriation of rival companies. information. In this regard.3.7. This approach considers advertising as an investment and a means to achieve long-term business objective. In this method.. Hence this method is goal oriented. The new product will require heavier promotional efforts to create awareness among masses as compared to promotional needs of already well established brand. it is better than affordable method. So in this regard. . Objective and Task Method The most desirable method of setting the advertising budget is objective and task method. but such information may not always be reliable.1.g. the whole budget will go wrong as objectives are the basis of this budget. This method ignores the other important factors affecting advertising budget. tasks required to be performed by the advertiser to achieve ad-objectives.. It is a need based budget. it needs no previous records. Krick Patrick has defined ‘objective and task approach’ as “listing the advertising objectives and identifying the tasks to be done to achieve these objects. spying. Tasks are like short-term goals. The other important variables can be affordability. where competitor’s actions are followed blindly. After that. there is no previous data on sales and no previous budget. cost of all these tasks is estimated and total cost of all these tasks plus some amount for contingencies constitute advertising budget. i. 4) Logical: This method is more logical. Demerits of Objective and Task Method This method has some weaknesses. The management can only makes guess about rival’s ad-budget. According to this method. Merits of Objective and Task Method 1) More Suitable in Case of New Products: In case of new product.

nature of customers. Company may also expect increase in sales. and for increased sales. 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 advertising cost and to provide for planned growth in sales. On the whole. 3) Ignores Affordability: This method considers the cost of various tasks as the basis of budget. level of sales.5. So it is also named as arbitrary method. mistakes and weaknesses of last year’s budget are carried forward. knowledge. stage in product life cycle. availability of funds. This asset has market value and can be sold at any stage. experience. if the level of competition is very high. This method involves no clerical or statistical work.7.1. However. But it is quite possible that cost may not be within affordable limit of organization. 1. more advertising expenditure will be required. Over the years. Brand equity refers to brand popularity and brand preference. then competitor’s budget cannot be ignored while framing our advertising budget. 3) 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. There may be change in marketing environment in comparison to last year like entry of new competitors. Advertising builds up an intangible asset that is brand-equity. Here advertising budget is based on arbitrary thinking of some experienced managers and not based on scientific lines. It is based on the experience and judgment of experienced managers.1.7. etc. The return that the company gets from advertising is generally spread over a period of time. Determining tasks requires adequate research. 1. advertising is also expected to give certain return. Increase in price level of advertising inputs leads to increase in advertising cost. This method considers advertising expenditure as an investment and not as routine revenue expenditure. from the standpoint of sound marketing practice. the errors.7. awareness. So changed environment may necessitate preparation of entirely new budget. advertising budget is decided by the experienced managers of the company on the basis of their judgment. Like other investments of the company. etc. etc. some managers gain experience and this enables them to arrive at appropriate figure for advertising budget by using their judgment.7.7. But it has certain limitations: 1) Ignores Change in Marketing Environment and Objectives of Advertising: This method simply ignores the needs and objectives of advertising. This is a very simple method.6.1. Advertising results in increased profits generated by increase in sales . 2) Repetition of Last Year’s Mistakes: This method simply adds a certain percentage to last year budget. Return on Investment Method Return on investment method is entirely different from other methods. Advertising expenditure in one year generates sales for years and thus returns on this investment flows in for many years. They decide the advertising budget at a lump sum figure considering all relevant factors like objectives of advertising. The availability of current revenues sets the upper limit of the ad budget. Hence. actions and reactions of competitors. objective and task method is more rational. The only advantage to this approach is that it sets reasonable limits on the expenditures for advertising. Any firm that limits its advertising outlays to the amount of available funds will probably miss opportunities for increasing sales and profits. this method is undesirable because there is no necessary connection between liquidity and advertising opportunity. 1.2) Difficult to Determine Specific Tasks: It is difficult to translate objectives into specific tasks. cost of various media.1. So the company should increase its advertising budget over past year’s budget. Judgment Method In this method. change in government policy. While in practice. realistic and need based as compared to other methods. So different tasks cannot be specifically defined. 4) Ignores Competitor’s Budget: This method does not give due consideration to competitor’s budget. All you can Afford Here the advertising budget is established as a predetermined share of profits or financial resources.4. 1.

are used to appropriate the amount of advertising budget. These methods assist the advertiser in deciding ad budget along with other methods of advertising.. it measures the cumulative effect of all the factors affecting advertising budget.8. Different advertising expenditure levels are kept for each market. the experimental approach removes the difficulties faced by other budgeting methods. 1.. simulation or programming techniques. Probability is used to estimate the chances that a consumer will purchase the product if he is exposed to an ad copy. Experimental Approach Experimental approach is used as an alternative to the statistical approaches and mathematical models. According to this method company spends on advertising till return on investment is more than the normal rate of return. are used to prepare advertising budget. etc. It is based on very logical considerations but in practice it is very difficult to assess the returns from advertising. The promotion or brand manager uses tests and experiments in one or more selected market areas. This method considers long run effects of advertising. etc. Brand awareness and sales levels are measured before. A brand may be simultaneously tested in several market areas with similar population. With the development of computers use of quantitative methods has increased. . Use of these methods is very tedious and only experts can make use of these methods.7. Capital budgeting techniques like net present value. Because of its complexity it is not used in real life.7.and goodwill. Apparently. This method correlates sales and profits with advertising expenditure..e. inter-relationship among various advertising activities and their effect on advertising budget is measured.9. Quantitative Methods (Statistical Methods) Statistical techniques like multiple regression. 1. Using simulation. discounted cash flow. The managers may decide any level of budget depending on the firm’s advertising objectives. The feedback data from these experiments and tests is used in determining the advertising budget. during and after the test in each market. probability. pay-back-method.1. Multiple regressions help to determine the effect of various factors on the size of advertising budget. Results are compared and estimates can be developed on how budget variations might influence advertising results nationwide.1. level of brand usage and brand share. The purpose is to determine the impact of input variations that might be used. i.

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