Compare and contrast the different approaches to budgeting for international advertising.
Answers
Advertising budgeting decisions can be made with the help of different formula. Budgets based on these approaches will be effective compared to actual budget. These approaches are generally used in combinations. The approaches are as follows,
Percentage of sales or Gross margin: In this approach, the advertising budget will be related to the percentage to sales, revenue, past history of sales and the forecasted sales of the future. This approach doesn't consider that advertising can influence sales. Depending on the situation listed below a firm need to modify the approach,
- When a brand decides to make a move
- When a brand is an established brand the can decide the percentage ( reduce percentage).
- New Brand
Competitive Parity and Share-Of- Voice: In the Competitive Parity approach the advertising budget is decided in comparison with the competitors. The major limitation is there is no guarantee for optimum spending. The common variant used in Competitive Parity approach is the Share-Of-voice.
All you can Afford: This method is particularly effective fort eh firm with limited resources. They can allocate all they can afford for advertising. Advertising expenditure will not be heavy while following this approach.
Objective and Task: It is the most optimal approach compared to all other above-mentioned approach and is followed by most of the large advertisers. In this approach, the Objective is established first and then the task required to fulfil the objective is detailed. Development of specific advertising campaign is done where it reaches five times of the relevant audience. The cost required is the advertising budget. The major drawback in this approach is the link between the objective and immediate future sales.
The different approaches for budgeting in advertising are:
1. Percentage of sales gross margin (When a company keeps aside a certain percentage of sales as advertising budget)
2. Everything you can afford (The amount to be budgeted depends on what are the available funds)
3. Competitive parity and share of voice (When the company makes sure that it is not losing ground to its competitors)
4. Objective and task (The ‘job to be accomplished approach).