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Belch: Advertising and
Promotion, Sixth Edition
IV. Objectives and
Budgeting for Integrated
Marketing
Communications Programs
7. Establishing Objectives
and Budgeting for the
Promotional Program
Budgeting Approaches
The theoretical approaches to establishing the promotional budget are seldom
employed. In smaller firms, they may never be used. Instead, a number of methods
developed through practice and experience are implemented. This section reviews
some of the more traditional methods of setting budgets and the relative advantages
and disadvantages of each. First, you must understand two things: (1) Many firms
employ more than one method, and (2) budgeting approaches vary according to the
size and sophistication of the firm.
Top-Down Approaches The approaches discussed in this section may be
referred to as top-down approaches because a budgetary amount is established (usually
at an executive level) and then the monies are passed down to the various departments
(as shown in Figure 7-13). These budgets are essentially predetermined and have
no true theoretical basis. Top-down methods include the affordable method, arbitrary
allocation, percentage of sales, competitive parity, and return on investment (ROI).
The Affordable Method In the affordable method (often referred to as the “allyou-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.
Strange as it may seem, this approach is common among small firms. Unfortunately,
it is also used in large firms, particularly those that are not marketing-driven
and do not understand the role of advertising and promotion. For example, many hightech
firms focus on new product development and engineering and assume that the
product, if good enough, will sell itself. In these companies, little money may be left
for performing the advertising and promotions tasks.
The logic for this approach stems from “We can’t be hurt with this method” thinking.
That is, if we know what we can afford and we do not exceed it, we will not get
into financial problems. While this may be true in a strictly accounting sense, it does
not reflect sound managerial decision making from a marketing perspective. Often this
method does not allocate enough money to get the product off the ground and into the
market. In terms of the S-shaped sales response model, the firm is operating in range
A. Or the firm may be spending more than necessary, operating in range C. When the
Top-Down Budgeting
Top management sets
the spending limit
Promotion budget set to stay
within spending limit
Bottom-Up Budgeting
Promotion objectives are set
Activities needed to achieve
objectives are planned
Costs of promotion activities
are budgeted
Total promotion budget is
approved by top management
© The McGraw−Hill
Companies, 2003
Figure 7-13 Top-down
versus bottom-up
approaches to budget
setting
217
Chapter Seven Establishing Objectives and Budgeting for the Promotional Program