You are on page 1of 17

Establishing the Budget

Size of Budget varies from a few thousand to a billion How much to spend ?? Perception that communication budget as an expense rather than an investment.

Marginal Analysis

Assumption of Marginal Analysis

Sales are a direct measure of advertising & promotion efforts. Sales are determined solely by advertising & promotion

Sales Response Models

The Concave downward function Amount of Advertising increases its incremental value decreases. The S- shaped response function Initial Budget ( Range A) - Little impact Increased Budget ( Range B) Increased Impact Increased Budget ( Range C)- Stable

Budgeting Approaches
Top- Down Approach- Affordable method, arbitrary allocation, percentage of sales method, competitive parity method, ROI Budgeting method Build-Up Approach

Top-Down Budgeting
Top management sets the spending limit

Promotion budget set to stay within spending limit

Affordable Method
Determine amount to spend in various areas Allocate the left over amount for advertising & promotion. Mostly used by small firms

Arbitrary Allocation
Determined by the Management. Theoretical basis is not considered. Considered as a weaker method in comparison to Affordable method

Percentage of sales method

Is based on sales of the product Two ways of determination Percentage of sales ( Rupees) Assigning a unit product cost to promotion& multiplying the amount by the number of units sold.

Advantages Financially safe & keeps ad spending within reasonable limit. It is simple, straightforward and easy to implement Disadvantage Cause & Effect Relationship Restriction on Budget Difficult to employ for new product introductions

Competitive Parity
Subscription to competitive media reporting Budget is established by matching the competitions percentage of sales. Minimizes unusual expenditures

ROI Method
Advertising & Promotions are considered as investments & expected to yield returns. Difficult to assess the returns provided by the promotional effort

Build- Up Approch
Promotion Objectives are set

Activities needed to achieve objectives are planned

Costs of promotion activities are budgeted

Total Promotion budget is approved by top Management

Objective & Task Method

Defining the communications objectives to be accomplished Determining the specific strategies and tasks needed to attain them. Estimated the cost associated with performance of these strategies & tasks Monitor Reevaluate Objectives

Determine which tasks will be required & costs associated with each Difficult for new product introductions