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.