Advertising Budget

An advertising budget is an estimate of a company’s promotional expenditures over a certain time period. More importantly, it is the money a company is willing to set aside to accomplish its marketing objectives. When creating an advertising budget, a company must weigh the value of spending an advertising dollar against the value of that dollar as recognized revenue.

Advertising budgets are often thought of as huge expenditures with vague returns. Firms think about the size or the bigness of the money spent and not quiet often is the effectiveness of the spending taken into consideration. Managers see the Advertising expenses as cutting into profits. But advertising budget should not be considered as expenditure but as an investment which if done properly can give real good returns.

Advertising is an important tool in the hands of marketers and many companies depend on it for their sales to happen and get profits. There are many Indian companies who spend millions on advertising. But then because of difference of opinion on its importance, the budget setting is arbitrary. Many a times the objectives of advertising take a back seat when budgets are finalised.

But one must realize that an adequate amount of advertising input is very necessary, not only to get a good brand image but also to increase profits through sales. Many a times advertisers or companies complain that they have to make the advertisement expenditure because their competitors are doing so. Now the importance of advertising has already been discussed. Here in this article we will familiarize the reader with various planning and operational aspects of advertisement.

Objective setting is a very important step and more importantly is influenced by the limitations of the budget. Irrespective of the size of the company, budget decisions are critical as the money spent on advertising may mean the difference between success and failure. So when in doldrums a company should think of some other more rational and practical way outs rather than cutting down the advertisement and other promotional budgets.

The advertising budget decision is not a one-time responsibility because every year the firms have to formulate new objectives keeping pace with ever dynamic and changing market situations. So new budget has to be formulated every year, each time a new product is introduced, or when either internal or external factors necessitate a change to maintain competitiveness. In this chapter we will study this aspect in detail. We will see how to fix up the budget through proper decision-making and how can this be optimized.

While planning for the advertisement Budget we seek answers to the following questions:

• How much would be the advertising input in order to achieve agreed marketing objectives?
• How much would be the amount of money one can afford to spend on advertising and still achieve the agreed profit objective?
• How much would be the apportionment of the total advertisement expenses on each individual product or product group?
• How much would be the advertising budget allocation on new products?

Deciding on the advertising budget

There are 5 specific factors to consider when setting the advertising budget

1. Stages in the life cycle

Advertisement requirements are different for different product life cycle stages as shown below:

(a) Introduction stage: New products typically receive large advertising budgets to build awareness for early adopters and trade

(b) Growth stage: The consumer awareness spread in mass market helps to generate consumer trial and further sales

(c) Maturity stage: At this stage advertisements must create differentiations in brand positioning through different perspectives such as benefits, applications, price etc. Established brands usually are supported with lower advertising budgets as a ratio of sales.

(d) Decline stage: At this stage, the budget must be reduced to the level needed to retain loyal customers only.

2. Market share and consumer base

The products, which are having high market share usually require low expenditures as a percentage of sales to maintain share. Building market share by increasing market size requires large expenditures, on a cost per impression basis. It is less expensive to reach consumers of a widely used brand than to reach consumers of low share brands.

3. Competition and clutter

In a market with a large number of competitors and a high advertising spending, a brand must advertise more heavily to be heard.

4. Advertising frequency

The number of repetitions needed to put across the brand’s message to consumers has an important impact on the advertising budget.

5. Product substitutability

Brands in a commodity class such as cigarettes, soft drinks and liquor require heavy advertising to establish a differential image. Advertising is also important when a brand can offer unique physical benefits or features.