, Marketing Communications Summary
CHAPTER 6 – BUDGETS
Since returns are hard to identify, allocation of funds for promotion is one of the primary
problems and strategic issues facing a marketer.
6.1 How the communications budget affects sales
Sales response models depict (= afbeelden) the relationship between communications efforts
and sales => concave : incremental value of added communications expenditures
decreases.
=>S-shaped : initially, when the level of effort is low, there is no communication
effect at all. Even if communications effort is 0, there will be a certain level of sales and a
minimum investment is needed to enjoy any results of the communications programme and to
increase sales
6.2 Communications budgeting methods
1. Marginal analysis
2. Inertia
3. Arbitrary allocation
4. Affordability
5. Percentage of sales
6. Competitive parity
7. Objective and task
Marginal analysis : invest resources as long as extra expenses are compensated by higher extra
returns problems in estimating the sales response relation
Inertia budgeting method : keep budgets constant year on year, while ignoring the market,
competitive actions or consumer opportunities
Arbitrary allocation : whatever the general manager or managing director decides will be
implemented
Affordability method : ‘leftover’ resources, after all input costs, are invested in communications
Percentage of sales : budgets are defined as a percentage of the projected sales of the next
year or take communications outlays of the past year as a basis and then add a certain
percentage, based on the projected sales growth of the following year
could lead to overspending or to small communications budgets (afhankelijk van impact)
, Competitive parity budgeting : companies look at the amount of money competitiors spend on
communications and then copy their budgets (logic : collective behavior of a market will not
skew much of the budget optimum)
Assess effects of their share of voice (SOV = ratio own communications
investments/communications investments of all market players) on their share of market (SOM)
> ad spendings will only influence SOM when there is a different advertising intensity over a long
period.
SOV strategies : Offensive strategy Defensive strategy
HIGH
Find a niche and Increase SOV to defend
Competitors’ SOV decrease SOV position
Offensive strategy Defensive strategy
LOW Attack with big SOV Keep a small SOV premium
premium to increase on competitors to keep
market share SOM position
Objective and task method : starts from communications objectives and the resources that are needed to
reach these planned goals. All needed investments are then added and this will lead to the overall
communications budget. => superior to all other methods
6.3 Factors influencing budgets
Market size, market potential, market share objectives, contingencies(= crisis action plans where reserve
budgets are provided for financing quick management actions), economies of scale, organizational
characteristics, planning gap (= if sales and profits lag behind projected and budgeted figures), crisis
situation, unexpected opportunities or threats, economic recession.
6.4 Budgeting for new brands or products
Primary budgeting method for launching new brands or products : objective-task-method
uncertainty and lack of historical data
Examine the industry advertising-to-sales (A/S) ratio for the market in which a brand is to be
launched. (doubling A/S ratio is considered a safe guideline for the first year of introduction, 2 nd
year 50% overspending)
CHAPTER 6 – BUDGETS
Since returns are hard to identify, allocation of funds for promotion is one of the primary
problems and strategic issues facing a marketer.
6.1 How the communications budget affects sales
Sales response models depict (= afbeelden) the relationship between communications efforts
and sales => concave : incremental value of added communications expenditures
decreases.
=>S-shaped : initially, when the level of effort is low, there is no communication
effect at all. Even if communications effort is 0, there will be a certain level of sales and a
minimum investment is needed to enjoy any results of the communications programme and to
increase sales
6.2 Communications budgeting methods
1. Marginal analysis
2. Inertia
3. Arbitrary allocation
4. Affordability
5. Percentage of sales
6. Competitive parity
7. Objective and task
Marginal analysis : invest resources as long as extra expenses are compensated by higher extra
returns problems in estimating the sales response relation
Inertia budgeting method : keep budgets constant year on year, while ignoring the market,
competitive actions or consumer opportunities
Arbitrary allocation : whatever the general manager or managing director decides will be
implemented
Affordability method : ‘leftover’ resources, after all input costs, are invested in communications
Percentage of sales : budgets are defined as a percentage of the projected sales of the next
year or take communications outlays of the past year as a basis and then add a certain
percentage, based on the projected sales growth of the following year
could lead to overspending or to small communications budgets (afhankelijk van impact)
, Competitive parity budgeting : companies look at the amount of money competitiors spend on
communications and then copy their budgets (logic : collective behavior of a market will not
skew much of the budget optimum)
Assess effects of their share of voice (SOV = ratio own communications
investments/communications investments of all market players) on their share of market (SOM)
> ad spendings will only influence SOM when there is a different advertising intensity over a long
period.
SOV strategies : Offensive strategy Defensive strategy
HIGH
Find a niche and Increase SOV to defend
Competitors’ SOV decrease SOV position
Offensive strategy Defensive strategy
LOW Attack with big SOV Keep a small SOV premium
premium to increase on competitors to keep
market share SOM position
Objective and task method : starts from communications objectives and the resources that are needed to
reach these planned goals. All needed investments are then added and this will lead to the overall
communications budget. => superior to all other methods
6.3 Factors influencing budgets
Market size, market potential, market share objectives, contingencies(= crisis action plans where reserve
budgets are provided for financing quick management actions), economies of scale, organizational
characteristics, planning gap (= if sales and profits lag behind projected and budgeted figures), crisis
situation, unexpected opportunities or threats, economic recession.
6.4 Budgeting for new brands or products
Primary budgeting method for launching new brands or products : objective-task-method
uncertainty and lack of historical data
Examine the industry advertising-to-sales (A/S) ratio for the market in which a brand is to be
launched. (doubling A/S ratio is considered a safe guideline for the first year of introduction, 2 nd
year 50% overspending)
