Selecciones - Webs

Belch: Advertising and
Promotion, Sixth Edition
IV. Objectives and
Budgeting for Integrated
Marketing
Communications Programs
7. Establishing Objectives
and Budgeting for the
Promotional Program
brand 101 gained a 12.6 percent market share by spending 34 percent of the total
advertising dollars in this category. Likewise, brand 401 in the toiletry industry had a
30 percent share of advertising dollars to gain 19.5 percent of sales.
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 when the return might be expected. A three-year payout plan is shown in
Figure 7-20. The product would lose money in year 1, almost break even in year 2, and
finally begin to show substantial profits by the end of year 3.
The advertising and promotion figures are highest in year 1 and decline in years 2
and 3. This appropriation is consistent with Peckham’s findings and reflects the additional
outlays needed to make as rapid an impact as possible. (Keep in mind that shelf
space is limited, and store owners are not likely to wait around for a product to become
successful.) The budget also reflects the firm’s guidelines for new product expenditures,
since companies generally have established deadlines by which the product
must begin to show a profit. Finally, keep in mind that building market share may be
more difficult than maintaining it—thus the substantial dropoff in expenditures in later
years.
While the payout plan is not always perfect, it does guide the manager in establishing
the budget. When used in conjunction with the objective and task method, it provides
a much more logical approach to budget setting than the top-down approaches
previously discussed. Yet on the basis of the studies reported on in Figure 7-17, payout
planning does not seem to be a widely employed method.
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. Because of problems
associated with these methods, their acceptance has been limited, as demonstrated in
the figures reported earlier in Figure 7-17. Quantitative models have yet to reach their
potential. As computers continue to find their way into the advertising domain, better
models may be forthcoming. Specific discussion of these models is beyond the scope
of this text, however. Such methods do have merit but may need more refinement
before achieving widespread success.
Summary of Budgeting Methods There is no universally accepted
method of setting a budget figure. Weaknesses in each method may make it unfeasible
or inappropriate. As Figure 7-17 shows, the use of the objective and task method continues
to stay high, whereas less sophisticated methods vary. More advertisers are also
employing the payout planning approach.
In a more recent study of how managers make decisions regarding advertising and
promotion budgeting decisions, George Low and Jakki Mohr interviewed 21 managers
in eight consumer-product firms. Their research focused on the decision
processes and procedures used to set spending levels on the factors that influence the
allocation of advertising and promotion dollars.
Year 1 Year 2 Year 3
Product sales 15.0 35.50 60.75
Profit contribution (@ $0.50/case) 7.5 17.75 30.38
Advertising/promotions 15.0 10.50 8.50
Profit (loss) (7.5) 7.25 21.88
Cumulative profit (loss) (7.5) (0.25) 21.63
© The McGraw−Hill
Companies, 2003
Figure 7-20 Example of
three-year payout plan ($
millions)
227
Chapter Seven Establishing Objectives and Budgeting for the Promotional Program