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An Advertising Budget refers to the amount of money allocated towards We don't spam. We Educate.
advertising of a brand or product.

While developing an advertising strategy, it is empirical to set advertising CHOOSE YOUR SUBJECT
objectives which are significantly influenced by the advertising budget.
Advertising objectives are important for decision making and to have a Advertising Management (20)
point of reference or standard against which the results can be measured. Articles (240)
A business may choose a sales objectives or communication objectives for Banking and Insurance (10)
the purpose of developing an advertising budget. Blog (35)
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Consumer Behaviour (22)
(i) Sales Objectives – The objective is to increase the sale of products or Cost Accounting (3)
to compliment the selling efforts of the sales department. The objective E-commerce (8)

may be changed from time to time depending upon the volume of sales Entrepreneurship (11)

which may be influenced by – Financial Accounting (2)

Financial Management (23)
Financial Services (19)
Price of products
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Advertising and Promotion
Income Tax (2)
Personal selling
International Business (13)
Competition
Investment Analysis & Portfolio Management
Consumer tastes
(10)
Product quality
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Economy
Macro-Economics (9)
Technology
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Direct action advertising Management Information System (4)
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(ii) Communication objective – The objective is to create awareness,
Marketing & Advertising (7)
develop interest or to change an attitude. For this purpose a business may
Marketing Management (18)
choose to –
Marketing of Services (6)
Micro-Economics (2)
Increase the % of target customers who associate a special feature or
Operations Management (2)
benefit with company’s brand
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Increase company’s brand usage among existing members RECENT POSTS

Encouraging a brand trial among targeted customers
Investment Analysis – Introduction,
Objectives, Process
Basis of Advertising Budget May 5, 2018

The various factors that have to be studied before setting the advertising
budget are – LED SIGN BOARD CONSULTANTS - LED SIGN BOA

sign board wala

Market size and Potential
Product life cycle stage Social Exchange, Equity & Balance Theory,
Interpersonal competence
Market share
April 16, 2018
Intensity of competition
Advertising frequency IRDAI – Insurance Regulatory Development
Product differentiation strategies and Authority of India
April 1, 2018
Many businesses consider advertising as an expense rather than an
investment, hence it is important to use a theoretical basis and budget Learning Theories – Cognitive,
Conditioning, Social Learning Theories
allocation methods to make an effective advertising budget.
March 31, 2018

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The Theoretical basis for creating an advertising budget is Economic Leadership Styles – Types of Leadership
Styles
Marginal Analysis. According to Economic Marginal Analysis a firm should
March 27, 2018
continue to increase its advertising budget for a particular brand or for a
certain target market as long as the (MR) Marginal Revenue exceeds the Inventory, Inventory Control – Theory Notes
Incremental Expenditure (IE). However this basis takes into account the January 13, 2018

two assumptions which are:

Organization Design – Types of
Advertising is solely responsible for sale Organization Structure

Sales are a direct result of advertising and the deviation can be January 2, 2018

measured accurately
Marketing Information System –
Components, Importance
Due to these assumptions this model is rarely used as it is not practical to
December 20, 2017
that assume advertising alone determine sales as there are many other
environmental factors that affect sales.
SIGN BOARD WALA - NAME PLATES CONSULTAN
Most advertiser support one of two models of advertising to sales response sign board wala
function namely the Concave downward function or the S-shaped function.
Budget, Budgeting, Budgetary Control
December 20, 2017

Resistance to change – Levels, Overcoming

Resistance
December 18, 2017

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Picture Credits: Advertising and Sales Promotion – S.H.Kazmi, Satish.K.Batra

Concave downward function curve – As the amount of advertising

increases it incremental value decreases following the law of diminishing
marginal utility i.e. advertising effects start diminishing quickly. Hence less
advertising money may needed for optimum sales.

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S-shaped function curve – Initial expenditure on advertising has a very

little effect on sales. After a certain point increment in advertising
expenditure lead to increased sales but the gain in sales continue only up
to a point and after that there is no effect on increased expenditure on
sales. Hence it suggests that less budget has a minimal impact and a high
budget may not necessarily have a high impact.

Advertisers must advertise and spend in the area of rising curves where
maximum return on advertising expenditure can be accomplished.

Approaches to Advertising Budget

Approaches to Advertising Budget

Top Down Approach Build Up Approach

Top management sets the
Advertising objectives are set
spending limit
Advertising budget is set within the Activities necessary to achieve
allocation limits. objectives are planned
Advertising objectives and activities
Costs of different advertising
are planned according to the set
elements are budgeted.
budget.
Total advertising budget is
It is a Judgmental Approach
approved by top management
Budget is not linked to the Budget is allocated on the basis of
objectives. activities considered essential to

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accomplish the objectives.

This leads to predetermined budget
allocations which are not related to
advertising objectives.
Methods – Affordable Method, Methods – Objective and Task
Arbitrary Allocation, Percentage of Method, Payout Planning,
Sales, Competitive parity, Return Quantitative Approach,
on investment Experimental Approach

Methods of Advertising Budget

(i) The affordable method – All you can afford –

It is a simple method
Whatever is left out of the financial budget is allocated to advertising
After making all business expenditures the amount left is allocated to
advertising

No consideration is given to advertising objectives or goals

Chances of over or under spending are high
A common method in small firms or firms with primary focus on new
product development

(ii) Arbitrary Allocation Method –

There is no theoretical basis of creating a budget

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Budget is allocated on the basis of what is felt necessary by decision

makers
It lacks systematic thinking
There is no relationship with advertising objectives
Managers believe that some amount must be spent on advertising and
pick up a figure

(iii) Percentage of sales method –

It is a commonly used method by large and medium sized companies

Budget allocated depends upon the total sales figure i.e. high sales =
high budget, low sales = low budget

The basis of budget allocation is the total sale of brand or product. It may
be:
A fixed percentage of last year’s sales figure is allocated as the budget.
A fixed percentage of projected sales figures of the next year
A fixed amount of the unit product cost is taken as advertising expense
and multiplied by the number of projected sales unit.

Advantages

It is simple, straight forward, easy to implement

Expenditures are directly related to funds available.

Disadvantages

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It ignores that less advertising may decline sales or potential of

advertising in rising sales
It can lead to over or under spending
It is difficult to predict sales for new products
Decrease in sales leads to decrease in advertising budget which may be
needed

(iv) Competitive parity method –

Budget is based on competitors expenditure, advertisers decide budget

matching competition’s % of sales allocation
Information of competitor`s budget is available in trade journal and
business magazine
The basis is that collective wisdom of many firms may generate an
advertising budget optimum or close to optimum
It leads to competitive stability
It minimizes chances of promotional wars

Disadvantages

Each firm allocates budget according to its own specific goals

It ignores the contribution of media and creative executions
Information is gathered when money is spent

(v) Objective and Task method

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In this method the selling objectives and budget decision are linked and
considered simultaneously. It involves –

Defining the advertising communication objectives to be accomplished

Deciding specific strategies and tasks necessary to achieve them
Estimating the costs involved in putting these activities in operation
The total of these costs is taken as the base to determine the advertising
budget.

Advantages

The method develops budget from ground up which is a proper

managerial approach
It does not rely on past sales or future sale forecasts
It considers all factors under advertiser’s control

Disadvantages

It is difficult to implement
It requires managerial involvement and high skills
It attempts to introduce variables such as awareness, knowledge, attitude
formation etc.
It is difficult to estimate all costs and determine all tasks necessary to
achieve the set objectives

(vi) Pay out planning

It is useful when introducing a new product

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The aim is to spend heavily to achieve increased awareness and product

acceptance
It estimates the investment value of advertising by linking it to other
budgeting methods
The idea is to predict the amount of revenue the product will generate
and the costs it will incur over a period of time
The advertising budget is determined on the basis of rate of return
desired
Preparing a payout plan depends upon accuracy of sales forecast,
factors affecting market, estimated costs
Initially the advertising expenditures will be high and eventually will reach
a break-even point and then will show decline and increase in sales
following the S shaped Function

Advantages

It is useful and logical planning tool

Disadvantages

It cannot account for uncontrolled factors e.g. – competition, changes in

government policies, new technology

(vii) Quantitative Models

Advertisers use quantitative methods such as mathematical and

statistical models to allocate advertising budget

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Multiple regression analysis is used to determine the effect of advertising

expenditure on sales.
Experimentation and formal analysis is required to use this method
It is an expensive and time consuming method

(viii) The Experimental approach –

It is an alternative to quantitative models

The Advertising manager conducts tests or experiments in one or more
selected market areas
The Advertising strategy is tested in market areas with similar population,
brand usage, market share
Different advertising expenditure levels are kept for each market
Brand awareness and sales levels are measured before and after
Results are compared and variation of influence of advertising
expenditure studied
The feedback results determine the advertising budget levels
Manager may decide a certain budget level according to the advertising
objectives

Disadvantages

It is expensive and time consuming

It ignores uncontrollable factors
It not universally accepted

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