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Determining advertising budget.
Advertising can be defined as any paid form of non personal presentation or promotion of ideas,
goods or services by an identified sponsor.
The advertising budget of an organization is a subset of the larger sales budget and within that, the
marketing budget. Advertising is a part of the sales and marketing effort. Money spent on
advertising can also be seen as an investment in building up the business.
Budget For Advertising:
To be successful, advertising should carry messages that appeal to your customers when they want
to buy and reach them through the media they use. It's amazing how many ad campaigns are based
on trying to resolve a business problem -- i.e. clearance sales designed to reduce inventory using
such slogans as "Everything Must Go" or "Must Reduce Overstocks." The U.S. Small Business
Administration advises businesses that
o
the main ingredient for successful advertising is to pitch your products or services to resolve
a customer's problem.
o
Time the advertisement campaign for when the customer wants to buy, not based only upon
when you want to sell.
o
Choose the advertising medium based on the ability to reach prospective customers.
If there is a golden rule for running an advertising campaign, it is that you have to stick to it.
Sustained Advertising = Recognition = Trust = Sales.
Advertising campaign is a long-term investment that takes time to show a return. Your budget must
reflect this reality. Expect to run your advertising campaign for two to four months before your
phone really starts ringing.
When setting the advertising campaign budget, there are two costs to be considered : production
costs, and media costs. Budgeting for both is critical for success.
Advertising Budget is the amount of money which can be or has to be spent on advertising of the
product to promote it, reach the target consumers and make the sales chart go on the upper side
and give reasonable profits to the organization.
Before finalizing the advertising budget of an organization, one has to take a look on the favorable
and unfavorable market conditions which will have an impact on the advertising budget. The market
conditions to watch out are as given below.
1. Frequency of the advertisement.
2. Competition and Clutter.
3. Market Share of the Product.
4. Product Life Cycle Stage.
1. Frequency of the Advertisement.
Frequency of advertisement means the number of times, advertise has been shown with the
description of the product in the allotted time slots. Thus, if any organization needs more
advertising frequency for its product, then the organization will have to increase its
advertising budget.
2. Competition and Clutter.
The companies may have large number of competitors for its product. And also there are
many advertisements shown which is called clutter. If clutter is there, the organization has
to then increase their advertising budget.
3. Market Share.
To get a good market share in comparison to their competitors, the organization should
have a better product in terms of quality, uniqueness, demand and catchy advertisements
with resultant response of the customers. All this is possible if the advertisement budget is
high.
4. Product Life Cycle Stage
If the organization is a newcomer or if the product is on its introduction stage, then the
organization has to keep the budget high to make place in the market with the existing
players and to have frequent advertisements. As the time goes on and product becomes
older, the advertising budget can come down as then the product doesn’t need frequent
advertising.
Methods the budgeting for Advertising:
A famous comment usually attributed to Lord Leverhulme goes:
“I know that half of my advertising budget is wasted, but I’m not sure which half”
It is notoriously difficult to measure the effect of advertising on a business’ sales. Advertising is just
one of the variables that might affect sales in a particular period.
How can a business know whether a specific advertising campaign was effective?
As a percentage of sales, advertising expenditure varies enormously from business to business, from
market to market.
Following approaches are used for setting the advertising budget:
Method (1) Fixed percentage of sales
In markets with a stable, predictable sales pattern, some companies set their advertising spend
consistently at a fixed percentage of sales. This policy has the advantage of avoiding an “advertising
war” which could be bad news for profits.
However, there are some disadvantages with this approach. This approach assumes that sales are
directly related to advertising. Clearly this will not entirely be the case, since other elements of the
promotional mix will also affect sales. If the rule is applied when sales are declining, the result will be
a reduction in advertising just when greater sales promotion is required!
Method (2) Same level as competitors
This approach has widespread use when products are well-established with predictable sales
patterns. It is based on the assumption that there is an “industry average” spend that works well for
all major players in a market.
A major problem with this approach (in addition to the disadvantages set out for the example above)
is that it encourages businesses to ignore the effectiveness of their advertising spend – it makes
them “lazy”. It could also prevent a business with competitive advantages from increasing market
share by spending more than average.
Method (3) Objective and Task
The objective and task approach involves setting marketing objectives based on the “tasks” that the
advertising has to complete.
These tasks could be financial in nature (e.g. achieve a certain increase in sales, profits) or related to
the marketing activity that is generated by the campaigns. For example:
o
Numbers of enquiries received quoting the source code on the advertisement.
o
Increase in customer recognition / awareness of the product or brand (which can be
measured).
o
Number of viewers, listeners or readers reached by the campaign
Method (4) Residual
The residual approach, which is perhaps the worst of all, is to base the advertising budget on what
the business can afford – after all other expenditure. There is no attempt to associate marketing
objectives with levels of advertising. In a good year large amounts of money could be wasted; in a
bad year, the low advertising budget could guarantee a further low year for sales.
Importance of Advertising Budget:
One of the most important considerations one must have when advertising the product is
budget. Advertising budget can literally make or smash business, so it is important to get the most
out of advertising rupees.
Advertising business usually costs money. There are plenty of ways to reach the market that is
beneficial to budget and will help expand the bottom line.
It is important to note a big budget used carelessly could be just as bad as having too small a
budget. In order to effectively research different types of advertisings, one will need to experiment
and research which types of advertising are best for the business.
Many businessmen try to upset and wonder their market, by spending as much as they can in a short
period of time, this tactic rarely works. Business needs to be in the public eye generally for a long
period of time for it to pick up steam. Building advertising campaign is similar to building your
business, tweaking and analyzing it over many months or years to make sure one is going in the right
direction.