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Discuss the Methods of Setting the Advertising Budget

      

Discuss the Methods of Setting the Advertising Budget

  

Answers

Faith
i) Affordable Method
Setting the promotion budget according to what the management thinks is affordable by the organization. Smaller companies are notorious at using this arguing that their companies cannot spend more than they have. This method of setting budgets completely ignores the effects of promotion on sales, and tends to place advertising last among spending priorities even when it is critical to the success of the firm. This leads to an uncertain annual budget, which makes long- range planning difficult.
ii) Percentage-of--Sales Method
This is a method that sets the promotional budget at a certain percentage of the current or forecasted sales. It is simple to use and helps management think about the relationships between promotion spending, selling price and profit per unit. But, this method wrongly views sales as the cause of promotion rather than as the result. The method does not provide any basis for choosing a specific percentage, except what has been done in the past or what competitors are doing currently.
iii) Competitive - Parity Method
This is setting a promotion budget that matches what the competitors are spending. That is, the marketers monitor the competitors’ advertising budget or get the industry promotion spending estimates from publications or trade associations, and then set their budget on the industry average.
iv) Objective.-and-Task Method
This is the most logical way of setting an advertising budget. That is, the company sets its promotion budget based on what it wants to accomplish with promotion This budgeting method entails;
- Defining the specific promotion objectives
- Determining the tasks needed to achieve these objectives
- Estimating the costs of performing these tasks (the sum of these costs is the proposed promotion budget)
This method forces management to spell out its assumptions about the relationship between the money spent on advertising and the adverting results. On the other hand, it is the most difficult method to use, since it is hard to figure out which specific tasks will achieve specific objectives.
Titany answered the question on October 7, 2021 at 05:12

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