Organisations Advertisment budgets

ESTIMATING FIRMS ADVERTISIMENT BUDGETS

Advertising Budget is the amount of money which can be or has to be spent on advertising of the product to promote it, reach the target consumers and make the sales chart go on the upper side and give reasonable profits to the company.

Firms need to calculate and set budgets for their marketing programme. There are a number of

ways in which firms can calculate how much to allocate to their marketing and advertising

spend. These methods will be discussed briefly below.  

Objective and Task Method

Under the objective and task method, the company calculates how much money they will need to

achieve their marketing objectives and marketing tasks. This method involves:

    1) Setting specific objectives

    2) Deciding what tasks need to be completed to achieve those objectives and

    3) Calculating how much money it will cost to complete the task list

This a challenging method because the firm has to attempt to calculate how much it will cost

to achieve their objectives. For example how much will it cost to make 50% of the target

audience aware of your brand or increase product sales by 10%. The advantage of the

objective and task method is that it increases the likelihood of the firm setting aside

sufficient money to cover the costs of completing its marketing tasks.

Competitive Parity Method

The competitive parity method involves examining how much competitors are spending on

marketing (and promotion) and matching or exceeding that spend. Advocates of the competitive

parity method say that it helps firms determine what their industry as a whole feel needs to

be spent on marketing. Opponents of the competitive parity method say that as the size and

operations of companies vary, marketing budget comparisons are useless.

Percentage of Sales Approach

Under the percentage of sales approach, the firm decides to spend a percentage of current or

future sales on their marketing campaign. The disadvantage to this method is that sales do

not always provide an indication of future budget requirements. The other disadvantage is

the challenge involved in deciding what percentage of sales should be used to set marketing

budgets.

Affordable Approach

Firms that adopt the affordable approach look at how much money they have available after

deducting operational costs and considering other budgets. The disadvantage to the

affordable approach, is that if the marketing budget is at the bottom of the firm's

priorities, there may not be adequate money left over for the marketing budget.

Summary

Allocating budgets is always a challenging task because it involves predicting how much

money the firm will need in the future. Each of the four budget calculation methods have

their advantages and disadvantages. The one chosen by each firm will depend on its resources

and previous experience with setting budgets.

Before finalizing the advertising budget of an organization or a company, one has to take a look on the favorable and unfavorable market conditions which will have an impact on the advertising budget. The market conditions to watch out for are as follows: Frequency of the advertisement Competition and Clutter Market Share of the Product Product Life Cycle Stage

1. Frequency of the Advertisement

This means the number of times advertise has been shown with the description of the product or service, in the granted time slots. So here, if any company needs more advertising frequency for its product, then the company will have to increase its advertising budget.

2. Competition and Clutter

The companies may have many competitors for its product. And also there are plenty of advertisements shown which is called clutter. The company has to then increase their advertising budget.

3. Market Share

To get a good market share in comparison to their competitors, the company should have a better product in terms of quality, uniqueness, demand and catchy advertisements with resultant response of the customers. All this is possible if the advertisement budget is high.

4. Product Life Cycle Stage

If the company is a newcomer or if the product is on its introduction stage, then the company has to keep the budget high to make place in the market with the existing players and to have frequent advertisements. As the time goes on and product becomes older, the advertising budget can come down as then the product doesn’t need frequent advertising.

When the market conditions are studied thoroughly, then the company has to set up its advertising budget accordingly. For setting advertising budget, there are four methods:

They are as follows.

• Percentage Of Sales: In this method, the budget is decided on the basis of the sales of the product from previous year records or from the predicted future sales. This is a pure prediction based method and best applicable to the companies which have fixed annual sales. But if in case there is a requirement for more promotional activities then this method has a disadvantage because there will be decrease in advertisements as the budget is fixed.
• Affordability: this method is generally used by the small companies. Only the companies which have funds and can afford advertising opt for this method. The companies can go for advertising at any time in whole year whenever they have money to spend. The amount spent also varies from time to time as per the advertisements takes place.
• Best guess: This method is basically for newcomers who have just entered the market and they have no knowledge or say they are not aware of how the market is and how much to spend on advertising. Thus, this method is applied by the higher level executives of the company as they are the only experienced people.

For the development of advertising and to get best results one need to follow the advertising process step by step. The following are the steps involved in the process of advertising: Step 1 - Briefing: the advertiser needs to brief about the product or the service which has to be advertised and doing the SWOT analysis of the company and the product. Step 2 - Knowing the Objective: one should first know the objective or the purpose of advertising. i.e. what message is to be delivered to the audience?

3. Step 3 - Research: this step involves finding out the market behavior, knowing the competitors, what type of advertising they are using, what is the response of the consumers, availability of the resources needed in the process, etc.
4. Step 4 - Target Audience: the next step is to identify the target consumers most likely to buy the product. The target should be appropriately identified without any confusion. For e.g. if the product is a health drink for growing kids, then the target customers will be the parents who are going to buy it and not the kids who are going to drink it.
5. Step 5 - Media Selection: now that the target audience is identified, one should select an appropriate media for advertising so that the customers who are to be informed about the product and are willing to buy are successfully reached.
6. Step 6 - Setting the Budget: then the advertising budget has to be planned so that there is no short of funds or excess of funds during the process of advertising and also there are no losses to the company.
7. Step 7 - Designing and Creating the Ad: first the design that is the outline of ad on papers is made by the copywriters of the agency, then the actual creation of ad is done with help of the art directors and the creative personnel of the agency.
8. Step 8 - Perfection: then the created ad is re-examined and the ad is redefined to make it perfect to enter the market.
9. Step 9 - Place and Time of Ad: the next step is to decide where and when the ad will be shown.

The place will be decided according to the target customers where the ad is most visible clearly to them. The finalization of time on which the ad will be telecasted or shown on the selected media will be done by the traffic department of the agency.

10. Step 10 - Execution: finally the advertise is released with perfect creation, perfect placement and perfect timing in the market.
11. Step 11 - Performance: the last step is to judge the performance of the ad in terms of the response from the customers, whether they are satisfied with the ad and the product, did the ad reached all the targeted people, was the advertise capable enough to compete with the other players, etc. Every point is studied properly and changes are made, if any.

If these steps are followed properly then there has to be a successful beginning for the product in the market.

The Media Strategy process has three “W”s to be decided. They are Where to advertise ? When to advertise ? What media type to use ?

Where is the place for showing or delivering advertisement. In short it means the geographical area from where it should be visible to the customers who use or are most likely to use the product or services offered. The place does not mean only TV or radio but it can also be newspapers, blogs, sponsorships, hoardings on roads, ads in the movie break in theatres, etc. The area varies from place to place like it can be on national basis, state basis and for local brands it can be on city basis.

When is the timing to show or run advertisement. For e.g. you cannot show a raincoat ad in the winter season but you need to telecast ad as soon as the summer season is coming to an end and rainy season is just about to begin. The ad should be delivered with perfect timing when most customers are like to buy the product. The planners need to plan it keeping the budget in mind as the maximum of 20% of revenues of the company can be used in the advertisement section. Different products have different time length for advertisements. Some products need year long ads as they have nothing to do with seasonal variations e.g. small things like biscuits, soaps, pens, etc and big services like vehicle insurance, refrigerators, etc. Some products need for three or four months. E.g. umbrellas, cold creams, etc. So the planners have to plan the budget according to the time length so that there is no short of money at any time in this process.

What is what type of media is to be used for delivering the message.

There are basically two media approaches to choose from.

• Media Concentration approach
• Media Dispersion Approach

In media concentration approach, the number of categories of media is less. The money is spent on concentrating on only few media types say two or three. This approach is generally used for those companies who are not very confident and have to share the place with the other competitors. They don’t want anyone to get confused with there brand name so this is the safest approach as the message reaches the target consumers.

In media dispersion approach, there are more number of categories of media used to advertise. This approach is considered and practiced by only those people who know that a single or two types of media will not reach their target. They place their product ads in many categories like TV, radio, internet, distributing pamphlets, sending messages to mobiles, etc.

Selection of Media Category

Whichever category is selected by the planners of the organization, they should select a proper media to convey their message.

If the product is for a big amount of customers then a mass media option can be selected like TV, radio or newspaper. The best examples for this type are detergent ads, children health drinks and major regular used products such as soap, shampoo, toothpastes etc.

If the planners want to change the mind of people doing window shopping or just doing shopping for sake of name, then point of purchase type can be opted by the company. This helps the company to explain their point to the buyers and convince the buyers to go for their product.

If the planners want to sell their product on one to one basis, then the third option is direct response type. Here, the company people directly contact the customers via emails, text messages, phone calls or meeting for giving demos. The best example of this type of media is the Life cell Cord Blood Banking. They go to their customers, explain them what it is all about and try to convince them.

Thus, this process of media strategy plays an important and vital role in the field of Advertising.