2. MEANING OF ADVERTISING BUDGET
• An advertising budget is the amount a
company set aside for its promotional
activities. Advertising budget is used by a
company for marketing the products and
services to the customers. Advertising budget
includes money for doing advertising research,
getting creatives made, printing material,
allocating money to advertising media and
ensuring proper implementation of ad
campaigns
3. FACTOR AFFECTING THE ADVERTISING
BUDGET
1. Degree of competitiveness in market:
Monopoly/Duopoly/Oligopoly
A monopoly firm does not have to worry about the promotional
spends as it is the only player in the market. For duopoly, where
market is dominated by two dominant players, the promotional
budgets would be high to outperform each other. In an Oligopolistic
market, where the market is cluttered and there are many players,
promotional spends has to be higher as the frequency of
advertisements has to be increased to get noticed among so many
players. Thus depending upon the competition the advertising
budget is set.
2. Market Share: Market leader/Market Follower
The advertising budget for a market follower will be decided by the
tactics of the market leader. To improve market share one of the
investment is to increase promotional spent. Thus, where a
company stands is a deciding factor in advertising budget
4. 3. Product life-cycle stage:
Introduction/growth/maturity/decline
The advertisement budget would be higher at the
introduction and growth stages as it has to introduce the
product in the market and establish itself among the
competitors so the frequency of advertisements would be
high and so would be the budget. As the product reaches
maturity and decline stages the promotional spent would
be lower.
4. Advertising Frequency: An ad can be played only once or
can be be multiple times. Also, it can be daily, weekly,
fortnightly, monthly etc. Depending upon the requirement,
the advertising budget is altered.
5. BUDGET SETTING METHODS
1. Percentage of Sales Method:
It is a commonly used method to set advertising
budget. In this method, the amount for
advertising is decided on the basis of sales.
Advertising budget is specific per cent of sales.
The sales may be current, or anticipated.
Sometimes, the past sales are also used as the
base for deciding on ad budget.
6. 2. Objectives and Task Method:
This is the most appropriate ad budget method for any
company. It is a scientific method to set advertising
budget. The method considers company’s own
environment and requirement. Objectives and task
method guides the manager to develop his promotional
budget by (1) defining specific objectives, (2)
determining the task that must be performed to achieve
them, and (3) estimating the costs of performing the
task. The sum of these costs is the proposed amount for
advertising budget. The method is based on the
relationship between the objectives and the task to
achieve these objectives.
7. 3. Competitive Parity Method:
Competition is one of the powerful factors
affecting marketing performance. This method
considers the competitors’ advertising
activities and costs for setting advertising
budget. The advertising budget is fixed on the
basis of advertising strategy adopted by the
competitors.
8. Thus, competitive factor is given more
importance in deciding advertising budget. For
example, if the close competitors spend 3% of
net sales, the company will spend, more or
less, the same per cent for advertising. Here it
is assumed that “competitors or leaders are
always right.” If not followed carefully, this
method may result into misleading.
9. 4. Expert Opinion Method:
Many marketing firms follow this method.
Both internal and external experts are asked
to estimate the amount to be spent for
advertisement for a given period. Experts, on
the basis of the rich experience on the area,
can determine objectively the amount for
advertising. Experts supply their estimate
individually or jointly.
10. 5. Affordability: In this method the budget for
advertising is decided based on availability of
funds. Mostly for small companies the funds
available varies from time to time based of
business performance. Hence marketing
spend vary throughout the year based on
availability of funds.
