Methods to determine the budgetary allocations for advertising:

Methods to determine the budgetary allocations for advertising: 

1. A percentage of sales 

2. Fixed amount 

3. Comparison to competitors 

4. Depending on Objectives 

1. A percentage of sales       

Pros: 

Problems of over advertising or under advertising will be avoided year-on-year 

Ad spend will be consistent

 Cons:

If the profits decrease, you decrease the ad spend and vice-versa

The problem here is that you are not clear about the cause and effect. Is the advertising driving sales or is it the sales driving advertising?

The sales reduction is due to other factors. Reducing ad spend is barking up the wrong tree. It does no good. It just reduces expenses in the short term. 

If you decrease advertising spend for lack of sales, by not advertising, you are hampering even an outside chance of sales picking up 

A downturn or recession is the time when you need maximum advertisement to stimulate sales and to differentiate yourself from the other competitors. This method pours cold water on this logic 

Historically brand managers have realized that a downturn in the economy is the best time for advertising since competitors reduce ad spend and your ads will get more ad visibility with less clutter. 

Consistent ad spend though good, is a problem because if you are not considering the external factors in consideration in your marketing strategy, it becomes difficult to survive. The Strategy has to take the competitors into consideration. 

What if the competitor has deep pockets and he takes up all the media space? The prospect will be exposed to only your competitors’ products. This will exacerbate the situation for your product 

2. Fixed amount every year

Cons: 

Strategy cannot be done without taking into consideration the competitors 

This is the most preposterous of methods to arrive at the budgetary allocation for advertisements 

3. Comparison to competitors:

Pros: 

Keeps the competition at bay and in sync with the external conditions 

Less Ad spend cannot be given as the cause for lower sales by the marketing manager since it is in equal amount to the competitors 

An Equal attempt and opportunity to inform or persuade or remind the prospect about the product. Advertising doesn’t give the competitor an advantage 

Cons: 

It doesn’t look at your strengths i.e. financial muscle 

Decisions are dependent on the competition and not by your own understanding of the market or customers 

Cost structure not considered. Are the margins equal for all competitors? 

4. Depending on Objectives

Pros: 

This is the best method of arriving at the budget for ads spend since it takes into account what are the objectives of the organisation. Without objectives, there can be no strategy 

The objective depends on the PLC. Whether it is to inform or persuade or remind or reinforce the prospect about the product? The budget value changes for each objective 

It also considers the external factors of competitor ad spend 

Cons: 

It is subjective since there is no benchmark 

Suggestions: 

Ad spend should depend on the competition i.e. whom do you think as competition.

Is it product form or product category? 

During times of recession or downturn, you compete with the generic competitors and budget competition as well. At that time, the budgetary spend has to change