What are the methods used in setting the total promotion budget what are the steps for the objective and tasks?

What Is a Promotional Budget?

A promotional budget is a specified amount of money set aside to promote the products or beliefs of a business or organization. Promotional budgets are created to anticipate the essential costs associated with growing a business or maintaining a brand name.

The budget is often set according to a percentage of sales or profits for an established business, a percentage of startup costs or use of funds in the case of a startup, a percentage of raised funds in the case of non-profit or a foundation, in order to maintain an expected growth rate.

Key Takeaways

• A promotional budget refers to money earmarked for the marketing, advertisement, or sales of a product or brand.
• The amount to budget to promote a new or existing product will depend on business analytics, market research, and anticipated return on investment.
• Changes in the advertising landscape have moved promotional dollars away from print advertising and toward web-based or social media campaigns.

How Promotional Budgets Work

The advertising and marketing of a business represent costs that most businesses have a tough time predicting, which is why a percentage method might be used. A promotional budget could be increased in anticipation of new product lines are set to release in the near future.

High promotional budgets can reduce profits during the period such assets are expended. Companies may allow for such higher costs based on an assumption that sales or awareness will increase among customers.

Promotional budgets usually include money put toward advertising across mediums such as radio, television, Internet, and print. A company’s promotional budget can include expenses for email campaigns, social media outreach, and outdoor signage.

The promotional budget might also go towards hiring outside experts and consultants who develop the campaigns and place ads in the appropriate media and locations. This can include contracting marketing intelligence firms to interpret data that shows how dollars spent on marketing translate into new or recurring business for the company.

Online advertising spending in 2019 was $125.2 billion, almost double the spend on television at $70.4 billion.

The decision-making process at organizations continues to evolve when it comes to allocating funds for promotional budgets. Budgeting strategies change as public attention continues to shift away from older, traditional media such as print to focus more on digital, online, and mobile media.

Based on a PwC report, 2019’s online advertising spend was $125.2 billion, almost double the spend on television at $70.4 billion, with Google and Facebook having a combined 70% digital ad spend market share.

The Changing Dynamics of Promotional Budgets

While the overall size of a company’s promotional budget might not have changed, the way the money is divided up may have. For instance, money previously dedicated to advertising through television might now include campaigns that reach people on smartphones.

The shifts that occur with promotional budget trends can have a direct effect on media industries that rely on those proceeds. A reduction in advertising dollars for newspapers and other print media, as companies directed those assets instead toward digital media and other outlets, contributed to a decline in the newspaper and magazine industries.

Companies regularly measure the return on investment from their promotional budgets. The results often have a significant impact on where companies continue to put their funds. For example, a company will likely change its strategy if a billboard campaign fails to attract attention at the same time social media marketing messages increase sales. In many cases, the promotional budget at the company will be adjusted to favor more investment in social media.

Just for you: FREE 60-day trial to the world’s largest digital library.

The SlideShare family just got bigger. Enjoy access to millions of ebooks, audiobooks, magazines, and more from Scribd.

Read free for 60 days

Cancel anytime.

There are 4 common methods used to set the total budget for advertising:

1. Affordable Method

This is a method often used by small businesses, where companies set the promotion budget at a level that the management finds the company can afford. They start with total revenues, deducting away operating expenses and capital outlays, and then devoting a portion of the remaining funds to advertising.

However this method ignores the effects of promotion on sales and tends to result in uncertain annual promotion budgeting which makes long-term market planning difficult. Due to it more often than not being the last on the priority list, it also often means that company under-spend on advertising even when it may be critical to the company.

1. Percentage-of-Sales Method

This is a simple method that links the relationship between promotion spending, selling price and profit per unit. This is done by setting the promotion budget at a certain percentage of current or forecasted sales, or by budgeting a percentage of the unit sales price.

However this method can result in a wrong relationship mindset which results in such budgeting being based on the availability of funds and causes similar difficulty in long term planning. This method also doesn’t provide any basis for choosing a specific percentage, except what has been done in the past or what competitors are doing.

1. Competitive-Parity Method

Then there are companies who chose to set their promotion budget to match competitors’ outlays. Usually this is through monitoring competitors’ advertising activities or getting industry estimates from publications or trade associations.

Though this method may seem logical, but there is no grounds in believing what your competitors do are good for you as each company is different and each will have its own unique promotion needs.

1. Objective-and-Task Method

This is the most logical budgeting setting method where the company develops the promotion budget by (1) defining specific promotion objectives, (2) determining the tasks needed to achieve these objectives and (3) estimating the costs of performing these tasks. Adding all 3 costs together will contribute to the promotion budget.

Through having think through the assumptions between dollars spent and promotions results, management will have to figure hard on what specific tasks will achieve the stated objectives and hence utilize the budget most effectively.

Stay Curious Always

Z

Which method for setting the total promotion budget is the most effective?

What are the 4 main methods of promotion?

Which method of promotional budgeting is most commonly used by marketers?

What are three methods of setting a budget for promotion quizlet?