Advertising and Promotions
Unit 18 LO4
4.1 Explain 2 of the processes for budget formulation.
The percentage of sales method is a procedure used to set advertising budgets, based on a predetermined percentage of past sales or a forecast of future sales. This method of budget allocation is popular with advertisers because of its simplicity and its ability to relate advertising expenditures directly to sales. Management usually determines the budget's percentage figure, which is based on the industry average or the company's historical or previous year's advertising spending. For example, a firm expecting to do £50 million worth of business next year and choosing to allocate 5% of their sales to the advertising budget, would propose a £2.5 million advertising budget. A similar decision may be based on market share, with £2 million being allocated for every share point a brand holds. Many advertisers, however, shun this method because it is based on the theory that advertising results from sales, while the converse is true, that is, that sales result from advertising. In other words, advertisers feel that advertising communicates to prospective buyers the features and benefits of a product that are necessary to generate sales. In addition, the method does not recognize that as conditions change, advertising expenditures should change with them. Finally, using this method may erroneously lead to excessive spending for large established brands and inadequate budgeting for products that may profit from additional advertising, such as new or repositioned brands. The percentage of sales procedure is used to set advertising budgets, based on a predetermined percentage of past sales or a forecast of future sales. This method of budget allocation is popular with advertisers because of its simplicity and its ability to relate advertising expenditures directly to sales. Management usually determines the budget's percentage figure, which is based on the industry average or the company's historical or previous year's advertising spending.
Objective and task budgets
One of the best ways to analyze an investment opportunity in a company is by examining its budget. Every business operates according to a budget, but budget methods and structures are often different, even for companies in the same industry. The objective task method is one way to approach budgeting that can impact how a business performs, and whether its investors profit. http://wiki.fool.com/Objective_Task_Method_of_Budgeting#sthash.21BZlXul.dpuf. 10/6/14
Businesses that use the objective and task method for determining advertising expenses allocate the marketing budget based on set objectives. To use this method, a company must define the desired results of advertising and the strategies and tactics required to achieve these results. Additionally, the business must assess the costs associated with these strategies and tactics. If no financial restrictions exist, a company can build its marketing budget by examining each goal or objective and the tasks necessary to reach these objectives. A primary challenge associated with this method is the difficulty of accurately assessing the advertising costs necessary to accomplish the goals.
The objective task method, or objective and task method of budgeting, is a process for creating a marketing budget. It follows several steps that begin with identifying and ranking specific objectives that a business wants to accomplish through advertising. Next, the objective and task method requires leaders to determine how they will meet their objectives, and which tasks it will require. Finally, based on estimates for the cost of performing these tasks, leaders can allocate money within the marketing budget to each task that seeks to fulfill an objective.
Use and Outcome
Ranking objectives is of key importance in the objective and task method of budgeting. This ensures...
Bibliography: http://wiki.fool.com/Objective_Task_Method_of_Budgeting#sthash.21BZlXul.dpuf. 10/6/14 http://wiki.fool.com/Objective_Task_Method_of_Budgeting#sthash.21BZlXul.dpuf. 10/6/14 http://www.smallbusinessnotes.com/marketing-your-business/promotion-plan.html#ixzz34FbXItLb 10/6/14
Please join StudyMode to read the full document