Advertising Budget
(3)
Objectives and Task Method:
This
is the most appropriate ad budget method for any company. It is a scientific
method to set advertising budget. The method considers company’s own
environment and requirement. Objectives and task method guide the manager to
develop his promotional budget by:
(1)
defining specific objectives,
(2)
determining the task that must be performed to achieve them, and
(3)
estimating the costs of performing the task. The sum of these costs is the
proposed amount for advertising budget.
The
method is based on the relationship between the objectives and the task to
achieve these objectives. The costs of various advertising activities to be
performed to achieve marketing objectives constitute advertising budget.
A more effective
budgeting strategy would be the one which considers the firm’s overall
promotional objectives. The budgeting then is done according to the
requirements for meeting these goals.
The idea is to budget so
the promotional mix strategies can be implemented to achieve the stated
objectives. The most well-known method under this approach is Objective and
Task Approach.
The approach used by the
objective and task method is build up approach consisting of three steps:
1. Defining the
communications objectives that are to be accomplished,
2. Determining the specific
strategies and tasks needed to attain them
3. Estimating the costs
associated with performance of these strategies and tasks. The total budget is
based on the accumulation of these costs.
Under
this method, following steps are to be followed to set advertising budget:
1.
Determine main objectives of marketing department.
2.
Set advertising objectives in terms of sales, profits, brand loyalty,
competitive stability, etc.
3.
Determine advertising task in terms of various advertising activities required
to be performed to achieve the advertising objectives.
4.
Estimate cost of each advertising activity for the defined period.
5.
Make sum of costs of all the activities. It is the estimated amount for
advertising.
This
process involves several steps:
1. Finalize Communication
objectives.
Any
company generally has two kinds of objectives viz. the marketing objectives for
the product and the communications objectives. The first job is to establish
the marketing objective and when that is done the net task is to determine what
specific communications objectives will be designed to accomplish these goals.
Communications objectives must be specific, attainable, and measurable, as well
as time limited.
2. Determine tasks required:
The
strategic plan designed to attain the objectives consists of various elements
one of which could be advertising in various media, sales promotions, and/or
other elements of the promotional mix. Each has its own role to perform and
hence the specific tasks should be finalized.
3. Estimate aggregate
expenditures:
The
next stage is to determine the estimated costs associated with the tasks fixed
the last step.
4. Monitor:
A
regular monitoring is required as to how much the objectives have been attained
effectively. If advertisements are an investment then a close monitoring of the
invested amount and its return is must.
5. Reevaluate objectives:
Once
specific objectives have been attained the budget should be reevaluated to
check how better it can be used to attain the other goals. Thus, if one has
achieved the level of consumer awareness sought, the budget should be altered
to stress a higher-order objective such as evaluation or trial.
The
major advantage of the objective and task method is that the budget is
developed from the bottom to up, which is a proper and rational managerial
approach. The method does not rely on past sales figures, forecasted sales,
what the competition spends and considers only those factors, which are under
the advertiser’s control.
According
to John J Burnett, this budget setting method is particularly well suited to
new product introduction when advertising must be developed more or less from
scratch. Although it is difficult to implement this method, it is still fairly
popular among large companies.
The
major difficulty that confronts planners is to determine which are those
specific tasks required and the costs associated with each. For instance, if
the objective is to accomplish an awareness level of 60% among the target
audience, what specifically are those tasks that need to be performed to
achieve this level of awareness? How much will it cost to perform these tasks?
It is difficult to know precisely what is required. Past experience, though,
serves as a good guide in case of existing products.
Moreover
it is not always possible to know exactly what are the specific tasks required
for achieving the set objectives and how much it will cost to complete the job.
This process is easier in case of an existing product or a similar product in
the same product category. But it is especially difficult for new product
introductions. Hence because of these disadvantages, many marketing managers
use top- down approaches for setting the total expenditure amount.
6. Payout Planning:
The
budgeting for a new product is a very different story because the first months
of a new product’s introduction require heavier-than-normal advertising and
promotion appropriations to stimulate higher levels of awareness and subsequent
trial. James O. Peckham studied the Nielson figures of more than 40 years and
estimated that a new entry should be spending at approximately twice the
desired market share. But the major question is what will be the profitable
amount of spending on promotion of the new product.
In
order to determine this, 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.
Managers
are always curious to find out how much money is to be invested in advertising
and for how long, before the brand gets established. How accurately a payout
plan can be developed depends on the accuracy of sales forecasts over time,
factors that affect the market and estimated casts.
Advertising
expenditures during the year of brand introduction will be high so as to
stimulate the movement of the target audience through various stages finally
leading to purchase. At this stage growth in sales can be expected to be slow
and the company would lose money.
The
brand reaches break-even in the next few coming years (may be 2nd or third year) and then starts showing
substantial profits. It cannot account for all the uncontrollable factors such
as competition, new technologies, changes in government policies and other
factors that may influence the plan. Payout planning method is not popular
among companies
The
payout plan is not always perfect however it guides the manager in establishing
the budget. A combination and joint use of this method and the objective and
task method, is a much more logical approach to budget setting than the
top-down approaches previously discussed.
On
the contrary several studies have shown that it does not have a wide acceptance
in the industry. Moreover, it cannot account for all the uncontrollable factors
such as competition, new technologies, changes in government policies and other
factors that may influence the plan.
Thus,
advertising budget is set on the basis of the objectives a company wants to
achieve and in what way it wants the objectives to be achieved. This method is
logically consistent and practically applicable for all the companies. The
method emphasizes on actual needs of the company. It is considered as a
scientific method to set ad budget.
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