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Organizination And Management Of Advertising
Agencies And Advertising DepartmentsMETHODS OF DETERMINING ADVERTISING BUDGET
- BUDGET BASED ON wHAT THE COMPANY CAN AFFORD: Many companies
determine the amount of budget on the basis of what the company has spent in the past
adding a percentage increase according to the objectives for the current period or what
management considers the firm can afford to spend for advertising after other factors have
been budgeted for.
Problems associated with this approach are:
a) advertising is a vital part of a firm’s marketing mix and cannot be planned for on any
long term or rational basis.
b) this approach ignores current demand levels and competitors advertising.
c) no attempts is made by the firm to relate advertising costs to advertising effects.
d) it is an approach which relegates advertising to a low grade function in the total marketing
activities of the company.- ADVERTISING COSTS AS A PERCENTAGE OF SALES: This approach fixes advertising
expenditure as a specific percentage of past, current and anticipated sales prices per unit.
This method has a number of advantages:
a) Advertising expenditure is related to the sales revenue in a direct way.
b) The method may help prevent very costly advertising competition between competing
firms in the same industry.
The limitations in using this method are:
a) Advertising is treated as a function of sales, rather than regarding sales as being produced
by advertising.
b) This method apportions money on the basis of sales earnings, rather than on future
opportunities.
c) Long-range planning is difficult if sales budget fluctuates from one trading period
to another.
d) The percentage of sales method does not relate advertising costs to product or sales
territories.- COMPETITOR-RELATED EXPENDITURE: In this approach, company sets its advertising
expenditure at a comparative level to that of its major competitors. The method has the
advantage of preventing costly advertising wars, but it presupposes that knowledge of
competitors’ advertising is accurate and that the marketing objectives of the competitor
are the same as all other competing firms. The method is not based on any rational or
objective criteria.