Setting and Allocating the Budget

Setting the Budget

• How much is enough?– We don’t know for sure

• How much is need to achieve goals?– Depends on goals

• Can you justify an budget increase?– Credit or gains, no blame for losses

Market Factors

• Understanding what competition is doing is part of the issue– Must anticipate what they will do

• Other market factors must be considered as well– Pricing, sales promotion, personal selling,

packaging, etc.

Finding the Balance Point

• Spend too little; best campaign can fail• Spend too much; waste tremendous amount of

resources and money

• Budget size is function of marketing and selling objectives– Modest budgets and ambitious goals are

irreconcilable

Key Questions

• In what market will you compete?– Expanding the market is pricey– Broad markets require large budgets

• What is your current market position?– Must decide on competition

• How do you evaluate the competition?– Brand leader can spend less and still compete

• Where will the brand be advertised?

Traditional Methods

• Percent of Sales - Projected sales revenue by a percentage– Key is the “Multiplier”– Can be adjusted for special circumstance– Somewhat illogical, since advertising budgets

are based on sales when advertising may be driving the sales

Traditional Methods

• Competitive Spending• Objective and Task• Expenditures per Unit• Subjective Budgeting

In contrast with Experimental Methods

Setting the Size of the Budget

• Assess the Task of Advertising• Long- and short-term goals• Profit Margins and Budget Size• Degree of Product Use• Difficulty of Reaching Target• Frequency of Purchase• Sales Exceed Production• New Product Introductions• Competitive Activity

Allocating the Budget

• GRP Distribution – Proportional to GRP goals

• Geographic Allocation– Proportional to amount of sales

• Seasonal Allocation– Proportional to Sales - Skewed