Approaches Allocation of Budget
We are discussing here 2 approaches to budgeting. They have their advantage and disadvantage.
It is called the top-down approach because the budgets are made by the top executed and the money is passed down the line to various departments.
This approach is applied in the affordable method percentage of sales, competitive parity method and Return On Investments (ROI) method of budgeting.
In this method, promotion adjectives are set for the tasks to be performed.
All the necessary activities to achieve the objectives are planned
The cost of these activities is as certain and budgeted.
Your budget should be by your objectives and the chosen Media”
Competitive Parity Method
Many firms base their advertising expenditure to compete with their rivals or their competitors. The information regarding this is found in business magazines, journals and annual reports of the company.
They try to have the same expenditure and try to choose the media.
Firms believe that by following this method they can make the optimal expenditure to lead to stability in market place etc.
This method may ignore the objectives of the company and concentrate only on competitive advertising.
It would be more appropriate to keep in mind the objective of the firm before going in for this method
Affordable Method
This means what the firm can afford after meeting all its expenses. The firm allocates the amounts to be spent on production and after that allocation is done for advertising and promotion.
The tasks to be performed by advertising are not considered
In this method, there can be chances of overspending or understanding.
This approach is common in small firms and some big firms not having much knowledge of advertisement resort to this method as well.
In this method, it is difficult to get into a financial problem as we are spending only what we can afford.
In this connection, we have to refer to the S-shaped response model, which is dealt with earlier.
The advertising expenses can be calculated on straight percentage sales or on the percentage of unit cost
Objective and Task Method
The expenditure allotted depends on the functions to be performed to achieve the objectives of the organization.
In this method, objectives are defined and specific strategies are formulated to achieve them.
The cost of implementing these strategies is estimated.
Establishing of the objective may be interpreted as achieving a percentage market share and bringing awareness of the brand to the consumers and general public.
The strategies may include advertising in various media and other elements of the promotion mix.
The cost of various media chosen is estimated.
It is necessary to monitor the expenses and evaluate the results.
It is difficult to correlate the expenses with the task performed for this experience is required.
Other methods consist of regression analysis, adaptive control model and compromise method given earlier
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