PPT-6

Advertising Budget
By
Dr.Monika Gulati
Associate Professor
Mlnc (DU)
 CONTENTS
➢ Introduction to Advertising budget
➢ Factors affecting Advertising Budget
➢ Advertising Budgeting Process
➢ Methods of Advertising Budget
➢ A) Affordable Method
➢ B) Percentage of Sale
➢ C) Competitive parity method
➢ D) Objective and Task Method
➢ E) payout planning method
➢ G) profit planning method
➢ Recommendations to finalise advertising budget
 Introduction to Advertising Budget
• ‘a Budget is telling your money where to go instead of wondering where it went’
• Budget is a quantitative expression of future plan of activities expressed in rupees.
• Advertising budget is a financial document that shows the total amount to be spent
on advertising and the ways it is to be allocated for promotion pf brand or product
etc. It is expression of advertising plan into money
• Acc to William Cohen-’In some cases your budget will be established before goals and
objectives due to limited resources. It will be given an amount and one has to modify
goals and objectives. In certain cases money is available and one has to figure out
how much money it will take to reach goals established’
• A.C.Nielsen Company said –’ There is probably confusion surrounding how much to
spend on advertising as there is about its ultimate effect. One manufacturer may
simply spend every dollar it has ,while some will limit to percentage of sales. some
spend as per competitors. But regardless of approach ,the main objective is to
achieve most efficient balance between apparent contribution to cost of sales and
cost of ad’
• A) advertising budget is translation of advertising plan into monetary units b) it helps
in meeting advertising objectives of an organization c) it is prepared for specific
future period of time d) it is prepared by advertising manager in consultation with
marketing manager and approved by top management e) it shows allocation of funds
to advertising activities f) it determines what the size of campaign will be.
 Factors Affecting Advertising Budget
• In order to design an effective advertising campaign ,one of the pre-
requisites for the planners is to set the advertising goals and
objectives clearly right in the beginning.
• Advertising objectives are the targets ,which marketers want to
achieve with the help of advertisements.
• While the task of setting objectives can be complex and difficult,
still it should be done properly, because specific goals and objectives
are foundation on which advertising and all promotional decisions are
made.
• Advertising is a part of promotional mix and thus advertising
objectives should also be in line with the overall promotional or
marketing objectives of a firm and which in turn should be in line with
overall organizational objectives.
• Setting advertising objectives is starting point of advertising
campaign.
• Advertising objective should help to determine what to include in the
ad and what to omit and provide a specific framework to help
determine the advertisement success.
 Advertising Budgeting Process
• It involves following steps-
• Setting Advertising Objectives-they should be laid clearly as far as possible in
quantitative terms. ex-inc sales, brand loyalty, product features etc.
• Determining the tasks to be performed to achieve advertising Objectives-next
step is to do tasks to achieve these objectives which includes selection of
advertising agency, selection of advertising media etc.
• Preparing advertising Budget-After identifying various tasks and activities to be
performed to achieve advertising objectives ,next step is to find out the cost of all
such tasks and activities.
• Approval of Top Management-the amount of advertising budget determined is sent
through marketing manager to top mgt. If top management feels budget is justified
need based and within affordable limits they approve same.
• Allocation of Advertising Budget-it specifies the amount to be spent on co. policies,
stage of product life cycle, promotional policies, different activities,territories
etc.it should be flexible to accommodate market changes and competitor strategy.
• Monitor and Control-Monitor means constant check on expenditure and control
requires comparing actual expenditure with planned expenditure and taking
corrective action. They are required to reduce wastage in advertising expenses and
to increase efficiency in various advertising activities
 Methods of Advertising Budgeting-1
• Affordable method-under this method advertiser base their advertising budget on what
they can afford. After all the allocations have been made to cover other relevant company
expenditures, whatever is left is allocated to advertising, presuming that this firm can afford
to spend on advertising.
ADVANTAGES DISADVANTAGES
1.It is very common and appropriate method for 1.It leads to uncertain annual budget leading to
small firms uncertain plans
2.Method promotes financial stability as firm knows 2.It does not allocate enough fund to get the
what it can afford and that they don’t exceed it product off ground and in market
3.This budget will be approximated after all other 3.It is not logical as it is based what company can
unavoidable expenses are met afford than what company needs to spend

• Profit planning Method-it attempts to relate advertising budget to desired profits rather
than to desired sales volume.
advantages disadvantages
1.Accomplishments because of advertising spending 1.The method tends to be impractical as the
can be precisely measured effectiveness of advertising can never be measured
precisely
2.The target of higher profits always lets the
marketer willingly spend and also overspend on
advertising
 Methods of Advertising Budgeting-2
• Percentage of sales method-it is the most commonly used method and is based on
fixed percentage of the previous year's sale (average of past years).It treats
advertising as operating expense which are usually analysed in terms of their ratio to
total sales volume. The mgt determines the amount either by taking a percentage of
the sales ,organizing a fixed amount of the unit product cost to the advertising and
multiply this with no.of units sold.

advantages disadvantages
1.Simple and easy to calculate 1.It does not focus on individual needs of the
firm
2.Since it takes past years as base spending is 2.Share of company varies in market so why
under control should all spend same percentage
3.It calculates advertising budget as per relation 3.If sales will be less budget will also be less,
between selling price, advertising cost, and profit whereas at that stage co’s should spend more to
per unit stay in business

4.It is most stable as entire industry uses the 4.It cannot be applied to new product as no
same percentage history is available
5.It is feasible if company has same budget year 5.If product is innovative presdiction of future
after year. sales is very difficult
 Methods of Advertising Budgeting-3
• Competitive parity method-it is fixed on the basis of the basis of direction taken from
competitors as they want to be defensive.it provides stability in the marketplace by reducing
unusual, unrealistic or overspending on advertising.
ADVANTAGES DISADVANTAGES
1.It helps marketer to be always updated with 1.It is not certain advertisers will function always in
market changes same manner

2.It helps to monitor spending on advertising as per 2.It ignores that advertising is at times done to
the needs of market,level of competition etc realise certain objectives.It is always not possible
that to go as per competitors
3.Organisation avoids aggressive advertising and 3.It is not good to ignore competitors but it is not
goes with proper planning good to make policies always as per competitors

• Payout planning method-it involves allocating advertising funds so as to gain an initial

• Objective and task method-it is the most logical method used. Here objective setting and
budgeting go hand in hand.it consists of build up approach of four steps-
• 1) defining objectives and tasks to be undertaken so that objectives are accomplished
• 2) determine quantity of advertising so that it can be measured
• 3)now measure the money needed to perform various tasks .If costs is greater than the
money available either objective must be scaled down or additional funds be arranged
• 4)once estimates are made it is to be approved by top management

advantages disadvantages
1.It is most practical as budget is made as per 1.If the objectives are not well defined and
objectives to be achieved prioritized the method will not yield optimal results
2,method is suitable for introduction of product 2.It fails to determine which task will be required
introduction, and product extensions and the costs associated with each
3.Objectives are fixed taken into consideration the 3.It is difficult to implement if no track record of
market conditions and also level of competition product is available
 Recommendations for Finalizing Advertising Budget
• 1.Analyze the sales of the prior comparable period-break this information into
three a) Actual sales in units b) Average prices c) Actual sales in rupees
• Set the period’s planned sales goal in terms of units and rupee value
• Decide the amount needed for advertising-the amount will vary widely depending
on factors like line of business, intensity of competition, broad goals, image of
company.
• Set the period’s total advertising budget-put down the cost of TV, Radio,
magazine, newspaper, direct mail and all other advertising budget
• Allocate the budgeted amount among company’s products
• Describe how the media can be used most effectively throughout the period. The
size of the media budget and selling opportunity will be important factors
determining the timing of specific appeals and general frequency pattern used.
• Set up controls to show the actual record of use of advertising for the period in
the media.
• Provide some means of checking on the effectiveness of the advertising.This might
include the –a) observing the changes in sales b) counting number of inquiries c)
measuring change in attitude of customers