Promotional Budget

Information about Promotional Budget

Published on July 18, 2009

Author: lizjohn



Preparing a PROMOTIONAL BUDGET: Preparing a P ROMOTIONAL B UDGET “I know that half of my promotion budget is wasted, but I’m not sure which half?”: “I know that half of my promotion budget is wasted , but I’m not sure which half?” Promotion budgeting is on…: Promotion budgeting is on… Increasing media costs Rise in competition Top management focus on productivity First area targeted during trying times! Managers need to prove every time Promotion spending is worth the effort Like any other budget Promotional Budget tries to answer: Like any other budget Promotional Budget tries to answer How much should I spend? When should I spend it? Where should I spend it? What should I spend it on? Budgeting practices in firms: Budgeting practices in firms Top-down approach Purely based on top management discretion Subjective and judgmental in nature Bottom-up approach Based on advertising objectives to be achieved Objective and data oriented in nature Top-down approaches to promotion budgeting: Top-down approaches to promotion budgeting All we can afford: All we can afford Budget for other functions – Production & Operations – is fixed Remaining is apportioned to advertising Demerit Promotion is an unimportant function No surety whether we are spending enough or more on promotion Arbitrary allocation for promotion: Arbitrary allocation for promotion Residual approach to budgeting No logical formula Based on top management discretion Demerits Ad objectives are ignored No systematic thinking A percentage of sales: A percentage of sales Budget is based on sales of the product Two methods Percentage of total sales Unit cost of promotion is calculated and multiplied by total units sold Variation – Projected Sales figures! Accounts for market changes (no past data) But even that method has cons!: But even that method has cons! Considers ad as an expense associated with sales Advertising is not an investment Might lead to stability if industry follows same pattern Difficult for new product intro’s Decrease in sales lead to lower budgets but that’s when it is needed the most Follow the competition: Follow the competition Based on competitor’s spending Demerits Equal expense – equal effectiveness Objectives and creative executions ignored Ignores company strength No guarantee that competition will follow the same method Roi approach!: Roi approach! Advertising is an investment Returns desired out of promotion Demerit Difficult to figure out monetary returns of advertising Bottom-up approaches to promotion budgeting: Bottom-up approaches to promotion budgeting Objective and Task to achieve: Objective and Task to achieve 4-step procedure Define communication objective Determine strategies and tasks needed to accomplish them Estimate their costs Determine the total budget Payout Planning: Payout Planning Payout plan determines investment value of advertising Follows a 3-year Plan 1 st Year promotion expenses are high and hence low or negative profits 2 nd year it goes Break-even 3 rd year it starts showing profit Quantitative modeling: Quantitative modeling Computer simulation models Identify all factors contributing to sales Figure out impact of advertising on sales Allocate the budget accordingly! But why do we budget promotion?: But why do we budget promotion? Check on advertising expenditure Approval from Top management Balanced focus across products Facilitates planned execution Provides direction for campaign planning Selection of media Which combination would you choose?: Which combination would you choose? Top-down approach Affordability Arbitrary allocation Percentage of Sales Competitive Parity Return On Investment Bottom-up approach Objective and Task Payout Planning Quantitative modeling

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