Objectives of Advertising Budget

The most logical budget setting method is the objective and task method whereby the company sets its promotion budget based on what it wants to accomplish with promotion. This method entails defining specific promotion objectives, the tasks needed to achieve these objectives and estimating the costs of performing these tasks.

Objective setting and budgeting should not come in sequence, one after another. They should be considered simultaneously because 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.

The approach used by the objective and task method is buildup approach consisting of three steps:

• Defining the communications objectives that are to be accomplished,
• Determining the specific strategies and tasks needed to attain them
• Estimating the costs associated with performance of these strategies and tasks.

The total budget is based on the accumulation of these costs.

Implementing the objective and task approach is somewhat more involved. The manager must monitor this process throughout and change strategies depending on how well objectives are attained.

This process involves several steps

1. Finalise Communication objectives

Any company generally has two kinds of objectives viz. the marketing objectives for the product and the communications objectives. The first job is to establish the marketing objective and when that is done the net task is to determine what specific communications objectives will be designed to accomplish these goals. Communications objectives must be specific, attainable, and measurable, as well as time limited.

2. Determine tasks required

The strategic plan designed to attain the objectives consists of various elements one of which could be advertising in various media, sales promotions, and/or other elements of the promotional mix. Each has its own role to perform and hence the specific tasks should be finalised.

3. Estimate aggregate expenditures

The next stage is to determine the estimated costs associated with the tasks fixed the last step.

4. Monitor

A regular monitoring is required as to how much the objectives have been attained effectively. If advertisements are an investment then a close monitoring of the invested amount and its return is must.

5. Reevaluate objectives

Once specific objectives have been attained the budget should be reevaluated to check how better it can be used to attain the other goals. Thus, if one has achieved the level of consumer awareness sought, the budget should be altered to stress a higher-order objective such as evaluation or trial.

The major advantage of the objective and task method is that the budget is developed from the bottom to up, which is a proper and rational managerial approach. The method does not rely on past sales figures, forecasted sales, what the competition spends and considers only those factors, which are under the advertiser’s control.

According to John J Burnett, this budget setting method is particularly well suited to new product introduction when advertising must be developed more or less from scratch. Although it is difficult to implement this method, it is still fairly popular among large companies.

The major difficulty that confronts planners is to determine which are those specific tasks required and the costs associated with each. For instance, if the objective is to accomplish an awareness level of 60% among the target audience, what specifically are those tasks that need to be performed to achieve this level of awareness? How much will it cost to perform these tasks? It is difficult to know precisely what is required. Past experience, though, serves as a good guide in case of existing products.

Moreover it is not always possible to know exactly what are the specific tasks required for achieving the set objectives and how much it will cost to complete the job. This process is easier in case of an existing product or a similar product in the same product category. But it is especially difficult for new product introductions. Hence because of these disadvantages, many marketing managers use top- down approaches for setting the total expenditure amount.

6. Payout Planning

The budgeting for a new product is a very different story because the first months of a new product’s introduction require heavier-than-normal advertising and promotion appropriations to stimulate higher levels of awareness and subsequent trial. James O. Peckham studied the Nielson figures of more than 40 years and estimated that a new entry should be spending at approximately twice the desired market share. But the major question is what will be the profitable amount of spending on promotion of the new product.

In order to determine this, 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 when the return might be expected.

Managers are always curious to find out how much money is to be invested in advertising and for how long, before the brand gets established. How accurately a payout plan can be developed depends on the accuracy of sales forecasts over time, factors that affect the market and estimated casts.

Advertising expenditures during the year of brand introduction will be high so as to stimulate the movement of the target audience through various stages finally leading to purchase. At this stage growth in sales can be expected to be slow and the company would lose money.

The brand reaches break-even in the next few coming years (may be 2nd or third year) and then starts showing substantial profits. It cannot account far all the uncontrollable factors such as competition, new technologies, changes in government policies and other factors that may influence the plan. Payout planning method is not popular among companies

The payout plan is not always perfect however it guides the manager in establishing the budget. A combination and joint use of this method and the objective and task method, is a much more logical approach to budget setting than the top-down approaches previously discussed.

On the contrary several studies have shown that it does not have a wide acceptance in the industry. Moreover it cannot account for all the uncontrollable factors such as competition, new technologies, changes in government policies and other factors that may influence the plan.