ASSIGNMENT FOR PRESENTATION

The agency for which you work has been appointed to handle the advertising for a leading motorcycle brand . The marketing manager has said that the same amount has been allocated for advertising for the past five years and thinks a change should be made but does not know whether to “ double or half the budget “

a. Explain the disadvantages of keeping the same budget each year .b. Discuss the advantages and disadvantages of setting budget with

reference to competitive spend.c. Make a recommendation of how you wish to set the budget.

Sohansons Limited has been in the motorcycle trade since 1921 and specialising in Suzuki products since 1959. The company was the first representative of the Suzuki Motor Corporation in East Africa and has maintained an exclusive agency with the corporation since.

INTRODUCTION TO

MISSION – Suzuki cares for all customers.

Positioning – Tripod S – sales , spares and service.

DISADVANTAGES OF USING SAME BUDGETS IN DIFFERENT FINANCIAL YEARS.

1. Failure to meet marketing objectives. Different goals in different years lead to changes in

activities, requiring setting of flexible budgets in relevant response.

2. Failure to respond to customers’ changing needs. From R&D customer preferences with seasons and trends.

These should be addressed by varying budgets accordingly.3. Poor business performance.

Narrowing profit margins may arise if the dynamic nature of the market is not considered e.g. inflation and exchange rates for multi-nationals.

4. Improper response to competitors. Unpredictable competitor activities make the environment volatile calling

for shifts in setting budgetary measures.5. Frustrated operations when there’s change of policy.

Policies from government e.g. tax and regulatory bodies may impose regulations that limit or present new opportunities.

6. Improper distribution networks. Channels of reaching consumers may change due to reasons e.g.

expansion/ downsizing.7. Ineffective supplier relationships.

Cost of production is affected by raw materials prices which vary with years.

…CONTINUATION

WHAT IS COMPETITIVE PARITY…

Method of allocating a budget for promotional activities that depends on what competitors are spending for similar activities.

Competitive parity spending is a defensive strategy that can help a business protect its brand or product's competitive position in the marketplace without overspending. Also called defensive budgeting.

Advantages of competition parity…

Collective wisdom of the industry. It also takes the competition into

consideration, which leads to stability in the marketplace by minimizing marketing warfare.

Disadvantages

 it ignores the fact that advertising and promotions are designed to accomplish specific objectives by addressing certain problems and opportunities.

Competitive parity may encourage promotional wars. Omo vs Ariel, these doesn’t provide long term sustainable competitive advantage in an era of standardized product

… Continuation

it ignores possible advantages of the firm itself; some companies simply make better products than others.

There is no guarantee that a competitor will not increase or decrease its own expenditures, regardless of what other companies do. 

it assumes that because firms have similar expenditures, their programs will be equally effective. This assumption ignores the contributions of creative executions and/or media allocations, as well as the success or failure of various promotions.

Lastly, not only does it assume that all competitors’ marketing objectives are the same but also that it leaves an advertiser subject to the same mistakes the competitor may make.

Budget Recommendation

Objective & task methodSet marketing objectives & decide on tasks required to meet them. Then set a budget by estimating the cost of each task. i.e.

Objective Task(s) Estimated Cost (Kshs)

Increase annual sales by 20%

Advertising TVC Billboards print

30 million 10 million 5 millionTotal- 45 million

Justification

Accuracy- enables us to work with actual figures

Reduces wastage- resources are allocated to specific and recognized tasks

ButThe estimated budget (45 million) is way beyond our ability.

% of sales

Therefore: Incorporate the % of sales approach where we allocate a % of our annual sales to marketing i.e. 20% of our current annual sales ( 100 million) – translates to Kshs. 20 million for advertisingJustificationThis approach allows us to work within our means.

Conclusion

Therefore, we recommend a mix of the objective - task and % of sales methods for efficiency.