MODULE 3

OBJECTIVE SETTING
AND BUDGETING
 PART 1
1. DEVELOPING ADVERTISING RESEARCH,
STRATEGY AND BIG IDEA ANALYSIS
1.1 INTRODUCTION: FUNDAMENTALS
OF AN AD CAMPAIGN
1.1.A. RESEARCH PROCESS
1.1.B. AD STRATEGY
1.1.C. BIG IDEA ANALYSIS
 1.1 FUNDAMENTALS OF AN AD
CAMPAIGN
Ad campaign
• Is a series of ads of a brand that are related because they all have the
same central idea and are run during the same time period.
• Eg Thanda matlab coca cola , men will be men ,daag acche hain,
Vodafone zoo zoo , pug.
Conti…
 • Digging for facts, data, information and knowledge
• Helps unearth nuggets about target audience, spot new trends eg online
Research shopping , uncover new product uses eg baking soda , discover competitor’s
weaknesses.
• ‘Message’ that the advertiser gives to solve a communications-related
problem
Advertising strategy • What the advertisement proposes to do or say to solve the
communication problem
• Idea that advertisers select for communicating the strategic message in
Big idea a creative way- (comes from insights )
• Central theme for a series of ad campaigns

• Physical form of an advertisement – story, script, copy, art, music,

Creative execution words and phrases, color, production, etc.
• Short-term decisions about specific, tangible tasks related to the
advertising method, media, etc.
Tactics • The Times of India, or a 15-second television spot on Gemini channel
in Tamilnadu, are tactical decisions that are short-term in nature.
 1.1.A. RESEARCH PROCESS

Define Problem Check Carry out

& Research Secondary Primary
Objectives Sources Research

Interpret the
Results
 Conti…

1. Define the problem and research objectives:

Identify the problem that needs to be solved. (problem
definition shouldn’t be too broad or too narrow)
Research Design Approaches:
i) Exploratory-Qualitative research techniques
ii) Conclusive
A) Descriptive (Survey , observation)
B)Causal (cause-effect experiments)
 Conti…
2. CHECK SECONDARY SOURCES
Secondary research uses information that has been collected previously for some
other purpose. Secondary research is quicker and cheaper than primary research,
which uses information collected firsthand.
Websites, magazines and general publications: These days the Internet and other
publications are a big provider of researched information. However, while surfing
through websites, be wary of the authenticity and timeliness of the information
published.
3. CARRY OUT PRIMARY RESEARCH
When an agency needs information that is not available elsewhere, or is not
reliable, it has to conduct primary research. Although collecting primary data is
more time- and money-consuming than collecting secondary data, it is more
relevant, reliable and up-to-date.
 Conti…
Examples:
1. Dove’s #StopTheBeautyTest → Dove is known for conducting primary research
(surveys, focus groups) globally, including India, to understand beauty biases.
2. Ariel’s #ShareTheLoad → The campaign was based on an actual survey conducted
by BBDO India to study household work distribution. (primary)
3. Whisper’s #TouchThePickle → P&G (Whisper’s parent company) conducted
consumer research on menstrual taboos before launching the campaign.
(primary)
4. Surf Excel’s #DaagAchheHain → This campaign was built on existing market
research and studies about Indian parents’ attitudes toward outdoor play.
(secondary)
5. Maggi’s Relaunch Strategy → Nestlé India relied heavily on secondary research
(market reports, consumer sentiment analysis, competitor tracking) post-ban.
6. Amul Topical Ads → These are always based on secondary sources like news
trends, government data, and cultural events.
 Conti…
4. INTERPRET AND PRESENT THE RESULTS
Agencies should first condense the mounds of data into manageable information
for the client and findings that would be useful in major decisions should be
presented. Statistical averages and summaries should be interpreted to understand
why things are the way they are.
 Conti…
MOTIVATION RESEARCH- PROBING THE CONSUMERS’ MIND
• Consumer’s motivation for purchasing is often complex and unclear to the casual observer, and often to
consumers themselves.
• These motives can only be determined by probing the subconscious. This type of approach is called
motivational research.
Some of the research methods used to probe the consumers mind include:
• In-depth interviews – unstructured interviews where the participant is encouraged to speak freely.
Designed to obtain insights into motives, ideas, and opinions
• Focus groups – small groups brought together to discuss particular products, ideas, or issues.
• Projective techniques – projecting internal states upon external objects. Designed to gain insights into
values, motives, attitude, or needs. Sentence completion, story completion, Thematic apperception test
(TAT- showing ambiguous pictures and asked to create stories about what is happening in the image)
• Association tests – participant is asked to respond to the first thing that comes to mind when they are
presented with a stimulus (picture, word) .
• Content analysis- analyzing media content ex: ads , articles etc
• Ethnography –living with the community to analyse the culture
Conti…
 Conti…
COMMON ERRORS IN RESEARCH
i. Getting obsessed with research
ii. Asking the wrong questions
iii. Taking answers at face value
iv. Using the wrong research method
v. Biasing research results
 1.1.B. ADVERTISING STRATEGY
SPELLING OUT THE STRATEGY
• A strategy statement is a document that contains details about the product to be
advertised—its target audience, the competitive scenario, the problem that the
advertiser is facing and the possible solution(s) to that problem.
• While many advertising agencies have their own formats for spelling out the
advertising strategy, the defining aspects of a good strategy statement are its
simplicity and clarity.
• The following is one of the most popular formats for composing a strategy
statement:
• The Marketing Communication Work Plan Format: The format of the marketing
communication work plan answers several relevant questions that help
in arriving at the advertising strategy.
Marketing communication work
plan format involves:
Prod
uct
desc
• Name, category, price, place. unique
ripti
on

• Who are the people with a need to be filled. Who is most likely to buy, demographics and
Prosp
ects
psychographics eg elle18 vs lakme

Prod • What are the human traits that would describe the brand eg Thums Up VS Coke
uct
perso
nality

• What do you want them to believe eg Cadbury worms controversy

Rewa • What positive feelings will customer have using the brand eg Cadbury, Maggie, surf
rd

Com • Who are the competitors? How are we different from the competitors
petiti
on

Obsta • What resists the prospects from buying eg mutual funds ,online shopping
cle to
sale

Mess • What action do you want the prospect to take?

age
objec
tive
 CHOICE OF STRATEGY APPROACH IN
COMMUNICATIONS: STRATEGIC OPTIONS
1. Generic: Taken by mkt leaders, monopolist or category creators. (Ex: Amul, Coke)
Brand ignores the competition and behaves that it is the only brand in the mkt
2. USP: Brand may have true and distinctive competitive advantage. USP- valued by its customers and
unexploited by competitors. (Ex: Dermicool-the cool effect on application)
3. Brand Image: Marketers try to establish a difference based on factors that are extrinsic to product
through marketing communication. (Ex: Thumbs up-Toofani)
4. Competitive Positioning: Establishes the difference or superiority of the brand through direct or
indirect competition (Ex: Burger king: Don’t Dine With The Clown)
5. Preemptive claim: Claim something unique/first in the category for the brand preemptively.
(Vadilal Icecream-100% Veg, Anchor Toothpaste: 100% Veg)
6. Resonance: For products with little or no differentiation. Links the product with an experience or
occasion. (Dairy Milk Heart Blush Silk for Valentines Day)
7. Affective: Use Emotional Appeal (Visa Card-Birds Ad Richard Gere, Vicks-Generations of Care)
8. Price Claim: Use Price Advantage (Smart Bazaar, https://www.youtube.com/watch?v=Z6FfNzVxisc)
 1.1.C. BIG IDEA
What is Big Idea?
The term can be traced back to David Ogilvy. In his 1948 book, Ogilvy on
Advertising, the archetypal ad-man pushed the importance of the “big idea” to
its poetic extreme: “It takes a big idea to attract the attention of consumers and
get them to buy your product.”
Big Idea has three components:
• It must articulate your unique point of view;
• It must convey what's at stake; and.
• It must be a complete sentence.
 APPROCAHES TO BIG IDEA

The goal is to develop an idea that is joined up and integrated with all other relevant channels, rather than a
series of separate executions that have a tenuous(weak) relationship with one another. This approach will
put you in a stronger position to engage consumers meaningfully in the places that matter.
 BIG IDEA ANALYSIS
1. START WITH A CLEAR BRIEF/ CHALLENGE
During the briefing stage there are two key areas of focus
• What are you looking to achieve?
• Who is your audience?
2. UNCOVER A COMPELLING INSIGHT
3. FIND THE BRAND CONNECTION
4. ARTICULATE THE IDEA CLEARLY AND SUCCINCTLY (clear and short)
 Conti…
DEVELOPING THE BIG IDEA
BelVita, owned by Mondelez International, were looking to bring their
breakfast biscuit to market in the US at a time when there were many
established direct competitors offering similar products.
BelVita knew that launching in such a competitive environment would
be tough and therefore needed a big idea that could help them stand
out from the crowd.
 Conti…
1. START WITH A CLEAR BRIEF/ CHALLENGE
• The big idea starts with the definition of the challenge and the
creation of a clear brief for everyone involved. If you’re working
with an agency, or group of agencies, then the brief is a critical
step as it will help ensure that there is clarity around what you are
looking to achieve.
• BelVita’s challenge was to create significant brand awareness,
engagement and trial in a crowded marketplace and therefore the
brief was most likely to come up with a differentiated big idea that
ran counter to every other brand was talking about, i.e. that the
morning was something to survive and get through.
 CONTI…

• DURING THE BRIEFING STAGE THERE ARE TWO KEY AREAS OF

FOCUS:
i. What are you looking to achieve? Be clear about what you ultimately want to
achieve by the end of the campaign so there is total clarity and focus.
For belVita, they wanted to do more than just simply introduce the brand to
America. Instead, they wanted to make a statement by creating buzz and
engagement and generate trial and sales.
ii. Who is your audience? It’s important to paint a clear picture of who you’re looking
to target with your campaign. An understanding of who your audience is, including
their likes, dislikes, motivations and lifestyles will enable you to craft your big idea
accordingly.
• BelVita defined their audience as ‘morning optimists’, a group of
people who were positive, ambitious but also constantly busy with
very hectic lifestyles.
 Conti…
2.UNCOVER A COMPELLING INSIGHT-
• The next task is to uncover a piece of sharp, compelling insight that
encapsulates a real truth and problem to solve for the consumer.
• This is usually achieved through extensive research in relation to both the
target audience and the overall product/ service category related to the
campaign.
• In belVita’s case they discovered that $1bn was spent every year to advertise
the benefits of breakfast foods and therefore consumers were being
bombarded with very similar messages.
• Whilst most brands talked about mornings as a problem, belVita’s own
research revealed that consumers felt breakfast was very important because
they wanted to accomplish a bigger goal in the morning.
• In other words, the morning was not a problem to be overcome but a fresh
opportunity to accomplish things.
 Conti…
3. FIND THE BRAND CONNECTION-
• The insight discovered in the previous stage enables a brand
to start brainstorming ideas and solutions to challenge the
consumer problem or need.
• With the knowledge that many consumers want to start the
morning positively and seize the day, belVita started moving
towards the idea that their breakfast biscuits give people the
energy to fuel a series of victories throughout the morning.
• This strategic idea, combined with their insight, led to the
creation of a new kind of morning campaign for a new kind
of morning brand.
 Conti…

4. ARTICULATE THE IDEA CLEARLY AND SUCCINCTLY (briefly)-

• The test of how well a big idea will resonate and translate across channels is
whether the connection between the insight and brand connection and the
proposed execution can be distilled clearly and succinctly on one page.
• Ask yourself whether the idea would make sense if shared on Twitter with
friends. If not, it’s possible the idea is not distinct or memorable and therefore
unlikely to have the power to make an impact.
• belVita’s ultimate big idea was to celebrate real morning wins with the creation of
a new, fresh communications approach that would embed their message into the
mornings of real people.
Big idea analysis of belVita’s
2. Establishing Objectives and Budgeting for the
Promotional program
2.1 Importance of objectives
2.2 Determining objectives
2.3 Establishing and allocating promotional
budget
 2.1 IMPORTANCE OF OBJECTIVES
(THE VALUE OF OBJECTIVES)
Advertising and promotional objectives are needed for several reasons,
including the functions they serve in:
• Communications (written, approved objectives to communicate with
public relations and/ or sales promotion firms, research specialists, or
media buying services)
• Planning and Decision Making (choose strategy that matches with
objective)
• Measurement and Evaluation (comparing actual performance against
measurable objectives)
 2.2. DETERMINING IMC
OBJECTIVES
Integrated marketing communications objectives should be based on a
thorough situation analysis that identifies the marketing and
promotional issues faced by the company or a brand.
• Marketing versus Communications Objectives
• Sales Versus Communications Objectives
• DAGMAR: An Approach To Setting Objectives
• Problems in Setting Objectives establishing
• Allocating the Promotional Budget
 Conti…
MARKETING OBJECTIVES
Marketing objectives are generally stated in the firm’s marketing plan and are
statements of what is to be accomplished by the overall marketing program
within a given time period.
Marketing objectives are usually defined in terms of specific, measurable
outcomes such as sales volume, market share, profits, or return on investment.
Good marketing objectives are quantifiable. For example, a copy machine
company may have as its marketing objective “to increase sales by 10 percent
in the small-business segment of the market during the next 12 months.”
To be effective, objectives must also be realistic and attainable. A company
with a very high market share may seek to increase its sales volume by
stimulating growth in the product category. It might accomplish this by
increasing consumption by current users or encouraging nonusers to use the
product.
 Conti…
Problems with Marketing Objectives
• Marketing goals defined in terms of sales, profit, or market share increases are usually
not appropriate for promotional objectives.
• They are objectives for the entire marketing program and achieving them depends on
the proper coordination and execution of all the marketing-mix elements, including
not just promotion but product planning and production, pricing, and distribution.
• For example, a company may be very successful in its promotional program, creating
interest and/or trial for a product. But what if the product is unavailable when the
consumer goes to buy it, or what if, once in the store, the consumer feels the product
is overpriced and decides not to buy?
• Should the promotional program be blamed when the product’s poor performance is
due to other marketing strategies or tactics?
 Integrated marketing communications (IMC) objectives
• They are statements of what various aspects of the IMC program will
accomplish.
• Managers must be able to translate general marketing goals into
communications goals and specific promotional objectives.
• Sometimes companies do not have a formal marketing plan, and the
information needed may not be readily available. In this case, the promotional
planner must attempt to gather as much information as possible about the
product and its markets from sources both inside and outside the company.
• After reviewing all the information, the promotional planner should see how
integrated marketing communications fits into the marketing program and
what the firm hopes to achieve through advertising and other promotional
elements.
• The next step is to set objectives in terms of specific communications goals or
tasks.
 Problems with Communications
Objectives
• Not all marketing and advertising managers accept communications objectives; some
say it is too difficult to translate a sales goal into a specific communications objective.
• But at some points a sales goal must be transformed into a communications
objective. If the marketing plan for an established brand has an objective of
increasing sales by 10 percent, the promotional planner will eventually have to think
in terms of the message that will be communicated to the target audience to achieve
this.
• Possible objectives include the following
• Increasing the percentage of consumers in the target market who associate specific features,
benefits, or advantages with our brand.
• Increasing the number of consumers in the target audience who prefer our product over the
competition’s
• Encouraging current users of the product to use it more frequently or in more situations.
• Encouraging consumers who have never used our brand to try it.
• In some situations, promotional planners may gain insight into
communications objectives’ relationship to sales from industry research.
• In attempting to translate sales goals into specific communications
objectives, promotional planners often are not sure what constitutes
adequate levels of awareness, knowledge, liking, preference, or
conviction.
• There are no formulas to provide this information. The promotional
manager will have to use his or her personal experience and that of the
brand or product managers, as well as the marketing history of this and
similar brands.
 Aspect Marketing Objectives Communications Objectives

Purpose Focus on overall marketing goals and Concentrate on conveying messages and building relationships.
strategies.

Scope Cover a wide range of marketing activities. Primarily concerned with communication strategies and tactics.

Target Audience Include potential customers, current Primarily target internal and external audiences.
customers, and stakeholders.

Strategy Determine how products or services will be Shape how messages are delivered to achieve brand awareness
marketed to achieve business goals. and engagement.
Measurement Quantitative metrics such as sales, market Qualitative metrics such as brand awareness, message recall, and
Metrics share, and customer acquisition costs. audience engagement.

Timeframe Can be short-term or long-term, depending Often aligned with specific campaigns or initiatives, with short to
on business objectives. medium-term focus.

Examples Increase market share, launch a new Enhance brand awareness, improve brand perception, increase
product, improve customer retention. engagement on social media.
 Examples of Marketing Objectives
• Increase Sales Revenue: Achieve a 15% increase in sales revenue over
the next fiscal year.
• Expand Market Share: Capture 10% of the target market within the next
six months.
• Grow Customer Base: Acquire 500 new customers within the next
quarter through lead generation activities.
• Improve Customer Retention Rate: Increase the customer retention rate
by 20% over the next year.
 Examples of Communication
Objectives
• Marketing Objective: Increase Sales Revenue
• Communication Objective: Implement targeted advertising campaigns and promotional offers to
communicate product benefits and drive sales, resulting in a 15% increase in sales revenue over the
next fiscal year.
• Marketing Objective: Expand Market Share
• Communication Objective: Increase brand visibility through strategic partnerships and targeted
messaging to capture 10% of the target market within the next six months.
• Marketing Objective: Grow Customer Base
• Communication Objective: Develop compelling content and messaging to attract potential customers
and drive engagement, resulting in the acquisition of 500 new customers within the next quarter.
• Marketing Objective: Improve Customer Retention Rate
• Communication Objective: Implement personalized communication strategies and loyalty programs
to strengthen customer relationships and increase the customer retention rate by 20% over the next
year.
Sales Versus Communications Objectives
• Sales-Oriented Objectives- To many managers, the only meaningful
objective for their promotional program is sales. They take the position
that the basic reason a firm spends money on advertising and
promotion is to sell its product or service.
• Promotional spending represents an investment of a firm’s resources
that requires an economic justification. Managers generally compare
investment options on a common financial basis, such as return on
investment (ROI).
• They believe objectives (as well as the success or failure of the
campaign) should be based on the achievement of sales results.
Sales vs. Communications
Objectives
Sales Objectives Communications Objectives

• Primary goal is increased sales • Increased brand knowledge,

• Requires economic justification interest, favorable attitudes
• Should produce quantifiable and image
results • Immediate response not
expected
• Goal is creating favorable
predispositions

7-41
 Aspect Sales Objectives Communications Objectives
Convey messages, build brand awareness, and influence
Purpose Drive revenue generation and increase profits. perceptions.

Focus Directly related to sales transactions. Centered around messaging and brand perception.

Internal and external audiences, including customers,

Target Audience Potential customers and existing clients. stakeholders, and the general public.

Strategies aimed at converting leads into customers, Strategies focused on advertising, public relations,
Strategy increasing sales volume, and boosting revenue. content marketing, and social media engagement.

Measurement Quantitative metrics such as revenue, units sold, Qualitative metrics such as brand awareness, brand
Metrics market share, and customer acquisition rates. recall, message retention, audience reach, and
engagement levels.

Can be short to medium-term, depending on campaign

Timeframe Often short-term with immediate revenue goals. duration and brand building objectives.

Examples Increase sales by 20%, acquire 100 new customers, Enhance brand awareness by 15%, improve customer
launch a sales promotion campaign. perception, increase social media engagement.
• Problems with Sales Objectives
• In the business world, sales results can be due to
any of the other marketing-mix variables, including
product design or quality, packaging, distribution, or
pricing.
• Advertising can make consumers aware of and
interested in the brand, but it can’t make them buy
it, particularly if it is not readily available or is priced
higher than a competing brand.
• Sales are a function of many factors, not just
advertising and promotion. There is an
adage(proverb) in marketing that states, “Nothing
will kill a poor product faster than good advertising.”

Factors Influencing Sales

• Another problem with sales objectives is that the effects of advertising often occur over
an extended period. Many experts recognize that advertising has a lagged or carryover effect;
money spent on advertising do not necessarily have an immediate impact on sales.
• Advertising may create awareness, interest, and/or favorable attitudes toward a brand,
but these feelings will not result in an actual purchase until the consumer enters the
market for the product, which may occur later.
• The carryover effect adds to the difficulty of determining the precise relationship
between advertising and sales.
• Another problem with sales objectives is that they offer little guidance to those
responsible for planning and developing the promotional program.
• The creative and media people working on the account need some direction as to the
nature of the advertising message the company hopes to communicate, the intended
audience, and the particular effect or response sought.
CHARACTERISTICS OF OBJECTIVES
• Colley argued that advertising objectives should be stated in terms of
• specify a target audience,
• concrete and measurable communications tasks,
• specify a time period for accomplishing the objective(s).
• indicate a benchmark starting point and
• the degree of change sought
CHARACTERISTICS OF OBJECTIVES
Specific

Attainable Measurable

Realistic Quantifiable

7-46
 2.3. ESTABLISHING AND
ALLOCATING PROMOTIONAL
BUDGET
• The size of a firm’s advertising and promotions budget can vary from a
few thousand dollars to more than a billion.
• Theoretical Issues in Budget Setting
• Marginal Analysis
• Sales Response Models
 Marginal Analysis
• As advertising/promotional expenditures increase, sales and gross margins
also increase to a point, but then they level off. Profits are shown to be a result
of the gross margin minus advertising expenditures. Using this theory to
establish its budget, a firm would continue to spend advertising/promotional
dollars as long as the marginal revenues created by these expenditures
exceeded the incremental advertising/promotional costs.
• As shown on the graph, the optimal expenditure level is the point where
marginal costs equal the marginal revenues they generate (point A). If the sum
of the advertising/promotional expenditures exceeded the revenues they
generated, one would conclude the appropriations were too high and scale
down the budget. If revenues were higher, a higher budget might be in order.
• While marginal analysis seems logical intuitively, certain weaknesses limit its
usefulness. These weaknesses include the assumptions that (1) sales are a
direct result of advertising and promotional expenditures and this effect can
be measured and (2) advertising and promotion are solely responsible for
sales.

Gross margin is the difference between revenue and cost of goods sold (COGS), divided by revenue.
 Budget Adjustments
Increase
Increase IfIf cost
cost isis less
less than
than the
the marginal
marginal revenue
revenue
Spending
Spending generated
generated

Hold
Hold IfIf the
the cost
cost isis equal
equal to
to the
the marginal
marginal
Spending
Spending revenue
revenue generated
generated

IfIf the
the cost
cost isis more
more than
than the
the marginal
marginal
Decrease
Decrease Spending
Spending revenue
revenue generated
generated

marginal revenue refers to the additional revenue generated by increasing advertising spending by a certain amount.
7-49
Sales Response Models
• Almost all advertisers subscribe to one of two models of the advertising/sales
response function: the concave-downward function or the S-shaped response
curve.
• The concave-downward function. according to the concave-downward
function model, the effects of advertising quickly begin to diminish, as shown in
Figure. Budgeting under this model suggests that fewer advertising dollars may be
needed to create the optimal influence on sales.
• The S-shaped response function. Many advertising managers assume the S-shaped
response curve (Figure B), which projects an S-shaped response function to the budget
outlay (again measured in sales). Initial outlays of the advertising budget have little
impact (as indicated by the essentially flat sales curve in range A).
• After a certain budget level has been reached (the beginning of range B), advertising and
promotional efforts begin to have an effect, as additional increments of expenditures
result in increased sales. This incremental gain continues only to a point, however,
because at the beginning of range C additional expenditures begin to return little or
nothing in the way of sales.
• This model suggests a small advertising budget is likely to have no impact beyond the
sales that may have been generated through other means (for example, word of mouth).
At the other extreme, more does not necessarily mean better.
• Additional dollars spent beyond range B have no additional impact on sales and for the
most part can be considered wasted. As with marginal analysis, one would attempt to
operate at that point on the curve in area B where the maximum return for the money is
attained.
 BUDGETING APPROACHES

1. Top-Down Approaches
i. Affordable method (allocates what is left to advertising & promotion)
ii. Arbitrary allocation (how much ever top mgmt feels is necessary)
iii. Percentage of sales (% of total sales or % of unit cost)
iv. Competitive parity, (matching the competition’s percentage-of-sales
expenditures)
v. Return on investment (ROI) (Ad &promotions are an investment and it’s
expected to earn a certain return)
2 Bottom-Up Approaches
vi. Objective and Task Method (amount required to complete task to achieve obj)
vii. Payout Planning (for expected rate of return how much ad & promotions
expenditure will be necessary)
viii. Quantitative Models (statistical and mathematical models (ex., multiple
regression analysis)
Top-Down
versus Bottom-
Up Approaches
to Budget
Setting
1.1 The Affordable Method In the affordable method (often referred to as
the “all-you-can-afford method”), the firm determines the amount to be
spent in various areas such as production and operations. Then it allocates
what’s left to advertising and promotion, considering this to be the
amount it can afford. The task to be performed by the advertising/
promotions function is not considered, and the likelihood of under- or
overspending is high, as no guidelines for measuring the effects of various
budgets are established.
1.2 Arbitrary Allocation Perhaps an even weaker method than the affordable method for
establishing a budget is arbitrary allocation, in which virtually no theoretical basis is considered and
the budgetary amount is often set by fiat. That is, the budget is determined by management solely
on the basis of what is felt to be necessary. The arbitrary allocation approach has no obvious
advantages. No systematic thinking has occurred, no objectives have been budgeted for, and the
concept and purpose of advertising and promotion have been largely ignored.
 Alternative Methods for Computing Percentage of Sales
1.3 Percentage of Sales Perhaps the most commonly used method for budget setting (particularly in large firms) is the
percentage-of-sales method, in which the advertising and promotions budget is based on sales of the product.
• Management determines the amount by either(1) taking a percentage of the sales dollars or (2) assigning a fixed
amount of the unit product cost to promotion and multiplying this amount by the number of units sold.
• The percentage-of-sales method is simple, straightforward, and easy
to implement. Regardless of which basis—past or future sales—is
employed, the calculations used to arrive at a budget are not difficult.
Finally, this budgeting approach is generally stable. While the budget
may vary with increases and decreases in sales, as long as these
changes are not drastic the manager will have a reasonable idea of
the parameters of the budget.
• At the same time, the percentage-of-sales method has some serious
disadvantages, including the basic premise on which the budget is
established: sales. Letting the level of sales determine the amount of
advertising and promotions dollars to be spent reverses the cause-
and-effect relationship between advertising and sales. It treats
advertising as an expense associated with making a sale rather than
an investment.
1.4. In the competitive parity method, managers
establish budget amounts by matching the
competition’s percentage-of-sales expenditures.
The argument is that setting budgets in this fashion
takes advantage of the collective wisdom of the
industry.
• It also takes the competition into consideration,
which leads to stability in the marketplace by
minimizing marketing warfare. If companies
know that competitors are unlikely to match their
increases in promotional spending, they are less
likely to take an aggressive posture to attempt to
gain market share. This minimizes unusual or
unrealistic ad expenditures.
Competitors’ Advertising Outlays Do Not Always Hurt
1.5. In the ROI budgeting method, advertising and promotions are
considered investments, like plant and equipment. Thus, the budgetary
appropriation (investment) leads to certain returns. Like other aspects of
the firm’s efforts, advertising and promotion are expected to earn a certain
return.
 Bottom-Up Approaches
2.1 Objective and Task Method It is important that objective
setting and budgeting go hand in hand rather than sequentially. It
is difficult to establish a budget without specific objectives in
mind, and setting objectives without regard to how much money
is available makes no sense. For example, a company may wish to
create awareness among X percent of its target market. A minimal
budget amount will be required to accomplish this goal, and the
firm must be willing to spend this amount.
• The objective and task method of budget setting uses a buildup
approach consisting of three steps: (1) defining the
communications objectives to be accomplished, (2)
determining the specific strategies and tasks needed to attain
them, and (3) estimating the costs associated with performance
of these strategies and tasks. The total budget is based on the
accumulation of these costs.

Objective and Task Method

2.2 Payout Planning The first months of a new product’s introduction
typically require heavier-than-normal advertising and promotion
appropriations to stimulate higher levels of awareness and subsequent
trial.
• To determine how much to spend, marketers often develop a payout plan
that determines the investment value of the advertising and promotion
appropriation. The basic idea is to project the revenues the product will
generate, as well as the costs it will incur, over two to three years. Based
on an expected rate of return, the payout plan will assist in determining
how much advertising and promotions expenditure will be necessary and
when the return might be expected.

Example of Three-Year
Payout Plan ($ Millions)
2.3 Quantitative Models Attempts to apply quantitative models to budgeting
have met with limited success.
• For the most part, these methods employ computer simulation models
involving statistical techniques such as multiple regression analysis to
determine the relative contribution of the advertising budget to sales.
 Conti…
HOW ADVERTISING AND PROMOTIONS BUDGETS ARE SET
 ALLOCATING THE BUDGET

Once the budget has been appropriated, the next step is to allocate it. The allocation decision involves determining
which markets, products, and/or promotional elements will receive which amounts of the funds appropriated.
i. Allocating to IMC Elements: sales promotions, public relations, direct & digital marketing etc
ii. Client/Agency Policies-The agency may discourage the allocation of monies to sales promotion, preferring
to spend them on the advertising area. The agency may take the position that these monies are harder to
track in terms of effectiveness and may be used improperly if not under its control.
iii. Market Size: While the budget should be allocated according to the specific promotional tools needed to
accomplish the stated objectives, the size of the market will affect the decision. In smaller markets, it is
often easier and less expensive to reach the target market. Too much of an expenditure in these markets
will lead to saturation and a lack of effective spending. In larger markets, the target group may be more
dispersed and thus more expensive to reach.
iv. Market Potential: When particular markets hold higher potential, the marketing manager may decide to
allocate additional monies to them.
v. Market Share Goals: “Investment brands” have a share of voice (SOV) greater than their market share,
indicating growth-oriented ad spending. As a brand's market share increases, its SOV often decreases,
making it an “under-spender” or “profit-taking brand.”
vi. Economies of Scale in Advertising: Large market share brands spend less money on advertising and realize
a better return
vii. Organizational Characteristics: Org Structure, power & politics, decision maker’s characteristics, approval
and negotiation channel, use of experts’ opinions
v. Market Share Goals

• Two studies in the Harvard Business Review discussed advertising spending with the goal of maintaining
and increasing market share.
• John Jones compared the brand’s share of market with its share of advertising voice (the total value of the
main media exposure in the product category).
• Jones classified the brands as “profit taking brands, or under-spenders” and “investment brands, those
whose share of voice is clearly above their share of market.”
• His study indicated that for those brands with small market shares, profit takers (under-spenders) are in
the minority; however, as the brands increase their market share, nearly three out of five have a
proportionately smaller share of voice.
 Conti…
vi. Economies of Scale in Advertising Some studies have presented
evidence that firms and/or brands maintaining a large share of the
market have an advantage over smaller competitors and thus can
spend less money on advertising and realize a better return. Larger
advertisers can maintain advertising shares that are smaller than their
market shares because they get better advertising rates, have declining
average costs of production, and accrue the advantages of advertising
several products jointly. In addition, they are likely to enjoy more
favorable time and space positions, cooperation of middle-people, and
favorable publicity. These advantages are known as economies of scale.
 Conti…

vii. Organizational Characteristics

• The organization’s structure—centralized versus decentralized,
formalization, and complexity.
• Power and politics in the organizational hierarchy.
• The use of expert opinions (for example, consultants).
• Characteristics of the decision maker (preferences and experience).
• Approval and negotiation channels. (ex: top-down, automated)
• Pressure on senior managers to arrive at the optimal budget.