TOPIC 6 - IMC BUDGET

DPM40093

Integrated
Marketing
Communications

TOPIC 6

Integrated Marketing Communications
Budget

Promotion Budget Approach

1. Top-Down Approach

▪ Budgetary amount is established (usually at an
executive level) and then the monies are passed
down to the various department.

▪ These budgets are essentially predetermined and
have no true theoretical basis.

Promotion Budget Approach

1. Top-Down Approach
a. The affordable method
b. Arbitrary allocation method
c. Percentage of sale method
d. Competitive parity method
e. Return on investment (ROI) method

Promotion Budget Approach

2. Build Up Approach

▪ A more effective budgeting strategy would be to
consider the firm’s communications objectives
and budget what is deemed necessary to attain
these goals.

▪ The idea is to budget so the promotional mix
strategies can be implemented to achieve the
stated objectives.

Promotion Budget Approach

2. Build Up Approach

a. Objective and task method
b. Payout planning method
c. Quantitative models method

Top - Down Approach

a. The Affordable Method

▪ The firm determines the amount to be spent in
various areas such as production and operations.

▪ Then it allocates what’s left to advertising and
promotion, considering this to be the amount it can
afford

▪ Ignores the effects of promotion on sales
▪ This approach is common among small company

Top - Down Approach

b. Arbitrary Allocation Method

▪ The budget is determined by management solely
on the basis of what is felt to be necessary.

▪ No systematic thinking has occurred, no objectives
have been budgeted for, and the concept and
purpose of advertising and promotion have been
largely ignored.

Top - Down Approach

c. Percentage of Sale Method

▪ The most commonly used method for budget setting
(particularly in large firms)

▪ Sets the budget at a certain percentage of current or
forecasted sales or unit sales price

▪ Easy to use and helps management think about the
relationship between promotion, selling price, and profit
per unit

▪ Wrongly views sales as the cause than the result of
promotion.

Top - Down Approach

d. Competitive Parity Method

▪ The managers establish budget amounts by
matching the competition’s percentage-of- sales
expenditures

▪ Sets the budget to match competitor outlays

Top - Down Approach

e. Return on Investment (ROI) Method

▪ Advertising and promotions are considered
investments, like plant and equipment.

▪ Thus, the budgetary appropriation (investment)
leads to certain returns.

▪ Like other aspects of the firm’s efforts, ads and
promotion are expected to earn a certain return.

Build Up Approach

a. Objective and Task Method

▪ Sets the budget based on what the firm wants to
accomplish with promotion and includes:

➢ defining promotion objectives
➢ determining tasks to achieve the objectives
➢ estimating costs

▪ Forces management to spell out its assumption about
the relationship between outlays and results but is
difficult to use.

Build Up Approach

b. Payout Planning Method

▪ The first months of a new product’s introduction typically
require heavier promotion appropriations to stimulate
higher levels of awareness and trial.

▪ To determine how much to spend, marketers often develop
a payout plan that determines the investment value of
promotion appropriation.

Build Up Approach

b. Payout Planning Method

▪ The basic idea is to project 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 promotions expenditure
will be necessary and when the return might be expected.

Build Up Approach

c. Quantitative Models Method

▪ These methods employ computer stimulation
models involving statistical techniques such as
multiple regression analysis to determine the
contribution of budget to the sales.

The Factors Influence Promotion Budget Allocation

a. Allocating to IMC Elements

▪ Many advertisers are shifting some of their budget
away from traditional advertising media and into
sales promotion targeted at both consumer and the
trade.

▪ Companies have taken a number of steps including
reducing agency fees, producing less campaign and
relying more on targeted media.

The Factors Influence Promotion Budget Allocation

b. Client/Agency Policies

▪ Both the agency and the client may favor certain
aspects of the promotional program, perhaps on
the basis of past successes, that will influence
where money are spent.

▪ For example; some agencies position themselves
as expert in nontraditional media and others tend to
send more money on the internet.

The Factors Influence Promotion Budget Allocation

c. Market Size

▪ In smaller markets, it is often earlier and less
expensive to reach the target market.

▪ In larger markets, the target group may be
more dispersed and thus more expensive to
reach.

The Factors Influence Promotion Budget Allocation

d. Market Potential

▪ For a variety of reasons, some markets hold more
potential than others.

▪ When particular markets hold higher potential, the
marketing manager may decide to allocate additional
money to them.

The Factors Influence Promotion Budget Allocation

e. Market Share Goals

▪ Two studies in the Harvard Business Review
discussed ads spending with the goal of maintaining
and increasing market share.

▪ New brands generally receive higher advertising
support.

▪ Older or more mature brands when they reach
maturity stage, advertising support is reduced.

The Factors Influence Promotion Budget Allocation

f. Economies of Scale in Advertising

▪ Some studies have presented evidence that firms or
brands maintaining a large share of the market have
an advantage over smaller competitors and thus
can spend less money on advertising and realize a
better return.

The Factors Influence Promotion Budget Allocation

g. Organizational Characteristics

▪ Some factor that influence the allocation decision:

✓ The organization’s structure
✓ The use of expert opinions
✓ Characteristics of the decision maker
✓ Approval and negotiation channels
✓ Pressure on senior managers to arrive at the

optimal budget.

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