Advertisement Budget - Types and Process.pptx

Advertisement Budget - Types and Process

1. ADVERTISEMENT BUDGETING

2. INTRODUCTION 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. Thus, Advertisement budget is a statement of future estimated expenditures for ad efforts. It is converting the advertising plan into monetary value.

3. INTRODUCTION When creating an advertising budget, a company must weigh the value of spending an advertising rupee against the value of that rupee as recognized revenue. Before deciding on a specific amount, companies should make certain determinations to ensure that the advertising budget is in line with their promotional and marketing goals: The target consumer — Knowing the consumer and having their demographic profile can help guide advertising spend. Best media type for the target consumer — Mobile or internet advertising, via social media, may be the answer, although traditional media, such as print, television, and radio may be best for a given product, market, or target consumer. Right approach for the target consumer — Depending on the product or service, consider if appealing to the consumer's emotions or intelligence is a suitable strategy. Expected profit from each rupee of advertising spending — This may be the most important question to answer, as well as the most difficult.

4. APPROPRIATION VS BUDGET An advertising appropriation is the total amount granted or earmarked by the top management for advertising. On the other hand, advertising budget is one that is divided into amounts set aside for specific activities

5. ADVERTISING EXPENSES Ad construction cost Media cost Ad agency cost Ad department cost Ad research cost

6. BUDGETING STEPS

7. METHODS OF BUDGETING

8. PERCENTAGE OF SALES METHOD Under this method, the advertising budget is set as a percentage of either the past sale or expected future sales. Small businesses usually use this method. B2B companies generally spend between 2%-5% of their revenues on advertising. On the other hand, B2C companies generally spend between 5%-10% of their revenues on advertising. Merits It is simple. It works on affordability It is consistent Demerits Wrong stressing It is static in approach It ignores long range planning

9. OBJECTIVES AND TASK METHOD The objective and task method is commonly used by large corporations. This method is based on the advertising objectives. Once the objectives are decided, the cost is estimated to complete those objectives, and accordingly, a marketing budget is set. Merits It is objective based It is review based It is individualistic Demerits It is irrelevant Objectives cannot be translated into tasks It is unscientific

10. COMPETITIVE PARITY METHOD The strategy involves using competitor advertising spending as a benchmark for a company’s own spending. However, budgeting the same amount of money does not guarantee the same outcome for a company. Therefore, the competitive party method comes with limitations. Merits It respects the superiors It kills competitive wars It is simple Demerits It is not logical It is a misfit It is difficult to get competitors' information

11. AFFORDABILITY METHOD With this method, advertisers base their budgets on what they can afford. Of course, arriving at a conclusion about what a small business can afford in the realm of advertising is often a difficult task, one that needs to incorporate overall objectives and goals, competition, presence in the market, unit sales, sales trends, operating costs, and other factors. Merits It is practical It is simple It is flexible Demerits It overlooks opportunities It is short-sighted It ignores the ability of advertising

12. ALL AVAILABLE FUNDS This is a very aggressive method under which all available profits are allocated towards advertising activities. This method can be used by start-up businesses that need advertisements to attract customers. UNIT SALES METHOD Under this method, the advertisement cost per article is calculated and based on the total number of articles, it is set.

13. BUDGETING APPROACHES Because budgeting is a process of preparing detailed projects of future amounts, we can create a budget in many ways, including: Top-down Bottom-up Incremental Zero-based Rolling Activity-based

14. TOP-DOWN Points to consider about imposed/top-bottom budgeting style: It’s time-efficient because decisions are made by a limited number of senior managers. Junior managers might not have the skills to fully participate in the budgeting decision-making process. Senior managers have a better view of strategic objectives and the resources available. Senior managers are closer to the strategic objectives and have a long-term view of the organisation . Junior managers could build slack into the budget to make it easier to achieve.

15. BOTTOM-UP Points to consider about participative/bottom-up budgeting style: Management’s morale is improved. Managers are more likely to achieve the plans in the budget. Lower-level managers are closer to the business and have better knowledge of unique issues/challenges and opportunities.

16. INCREMENTAL BUDGETING Businesses often build on past budgets. The incremental budgeting process starts with the previous budget and adds (or subtracts) an incremental amount to cover inflation and other known changes. Advantages It’s quick and easy to maintain. It suits stable organisations with acceptable historic figures. Disadvantages It embeds earlier issues and inefficiencies. Economically inefficient activities can continue. It encourages artificial behaviour (i.e. spending the whole budget so the same amount is included in the following year).

17. ZERO-BASED BUDGETING Zero-based budgeting requires all costs to be justified by the expected benefits. It’s an alternative to incremental budgeting – the budget is based on the previous period’s budget or actual results, plus extra for inflation and other known changes. Advantages Inefficient and obsolete operations can be discontinued. There’s an increase in staff involvement because it requires a lot more information and engagement. It responds to changes in the business environment. There is efficient and effective resource allocation. Disadvantages It focuses on short-term benefits to the detriment of long-term advantages. The rigid budget process leads to lost opportunities. Management skills might be lacking. Staff might be demotivated by the need for significant time and effort.

18. ROLLING BUDGETING A rolling budget is continuously updated by adding an accounting period when the earliest accounting period expires. Advantages Planning and control are based on an accurate budget. It reduces uncertainty. The budget extends into the future. It encourages managers to reassess the budget regularly and more frequently. Disadvantages It’s costly and time-consuming. Staff might be demotivated by the time spent on budgeting. It can lead to less controlled results due to the effort required. Version control can be an issue because numbers are always changing.

19. ACTIVITY-BASED BUDGETING (ABB) This budget is based on activities. Cost-driver data is used to set budgets and variance analysis. Advantages This system draws attention to overhead costs, which make up a large proportion of total operating costs. It recognises the activities that drive costs. It provides useful information for Total Quality Management (TQM). Disadvantages It takes time to identify activities. It’s difficult to identify responsibility for individual activities.

20. TYPES OF BUDGETS Master budget - The master budget is a compilation of all the budgets. It’s similar to published financial accounts. It consolidates all subsidiary budgets and usually comprises the budgeted profit and loss account, balance sheet, and cash-flow statement. Cash budget - A cash budget is a detailed estimate of the organisation’s cash inflows and outflows. Capital budget - A capital budget facilitates decision-making on specific investment project choices. It provides guidance on the total amount of capital expenditure to commit. Operating budget - An operating budget captures the revenues and income, and the expenses expected in the forthcoming period.

21. FACTORS AFFECTING BUDGET SIZE Financial condition Objectives of advertising Nature of Product Nature of customer Stage of product life cycle Advertising strategies Top management philosophy Competitors' budget size

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