Budgeting - Advertising Management

“Not even the most productive cow can be milked without spending money”
Amount of money spent on advertising depends on objectives. It differs from company to company various practices are followed:

  1. Competitive parity method.
  2. Affordability method.
  3. A fixed percentage of turnover method.
  4. Budget based on functions to be performed (Objectives and task method).
  5. Regression analysis: Based on historical data. Time series data. To predict dependent variable-sale or market share. Advertising expenditure is the in depend variable.
  6. Adaptive Control Model:
    Advertising budget decision need changing as relationship between advertising and sales change over time. It gives an idea of optional expenditure on audience to be reached, size, location, media cost etc.

In connection with the response to advertisement there are 2 models to be considered. Concave downward response curve shows that the effect of expenses on advertising follows the micro-economic law of diminishing returns. When the amount of advertising increases its incremental value decreases as shown in the curve. The response in the beginning is very good but with further increase in advertising the response becomes smaller's.

Adv-expenditure

S-Shaped Response Curve:
In this three ranges A, B and C are shown. In the A range, the expenditure is lower than required and there is no increase in sales. In the second or B range which is most effective, the sales start increasing and goes up to the beginning of sales C where with the additional expense there is little increase.

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Advertising Management Topics