Budgeting

Getting it RightChapter 6

Decisions Decisions

• Objectives

• Budget Control tool, planning, accountability

• Advertising Budget• Media Selection• Media Strategy• Creative/Message

Advertising Budget

• How much money to spend• Budget distribution across Promotional tactics• Four Main Methods:– Percentage of Sales– Peckham’s Formula– Competitive Parity– Objective and Task

Percentage of SalesA2 = f(S1)

A2 = total advertising dollars for period 2

f = a percentage figureS1 = sales for period 1 (previous period)

• Using past sales to determine future promotion $$• Doesn’t allow for emergency adjustment• Used to compare spending ratios across companies• Doesn’t consider objectives• Limiting

Percentage of Sales (2)A2 = f(S2)

A2 = total advertising dollars for period 2

f = a percentage figureS1 = sales for period 2 (forecast)

• Based on “affected” sales period• Still only based on sales• Good initial base allocation• Doesn’t consider objectives

Peckham’s Formula

• Relationship between sales and advertising $$• Applicable in certain categories– Correlation between SOV and SOM

• SOV = (1.5)SOMdn • Based on 18yrs of sales and advertising data• Only for new products – Results cannot be generalized

Competitive Parity

• Ad $$ as a proportion/share of product’s market share• Establish a share of the total ad $$ for all products of

the category– SOV = SOM

• Useful in planning and control• Provides a yardstick– Used in stable markets

• Doesn’t apply to all products or categories• Established brands require less SOV

Objective & Task

• Used by majority of advertisers• Relates specific tasks to the dollars that will be

spent• Doesn’t consider relationship between short-

term and long-term effect of promotion• Requires clear objectives and reliable

estimations of audience response

Other “Methods”

• Historical– Based on previous year– Adjust for inflation– Objectives are irrelevant

• All you can afford– “whatever is left over”– Lack of value to promotion

Recent Trends

• Shift in Budget allocations– Digital media• Declining in traditional media• Increasing in digital media

– Cable and Spanish media on the rise• Increased ROI measurement of brand equity• Increased accountability– Measurable results and investment

Facebook Growth Projections

Q1 2012 vs. Q1 2011