Setting the Advertising Budget
After finding out its advertising objectives, the marketer has to set the advertising budget for each product and market. Commonly four used methods for setting promotion budgets were discussed in previous Lesson. No matter what method is utilized, setting the advertising budget is no simple task. How does a company get know if it is spending the accurate amount? Some critics charge that huge consumer packaged- goods firms tend to spend too much on advertising and business-to-business marketers in general under spend on advertising. On the one hand they claim that the big consumer companies use many image advertising without actually knowing its effects. They overspend like a form of "insurance" against not spending sufficient. Alternatively, business advertisers tend to rely too heavily on their sales forces to bring in orders. They underestimate the power of product image and company in pre-selling to industrial customers. Therefore, they do not spend sufficient on advertising to build up customer awareness and knowledge.
Some particular factors that should be considered when setting the advertising budget are following:
- Stage in the product life cycle. Typically new products need large advertising budgets.
- Market share. Usually high-market share brands need more advertising.
- Competition and clutter. Usually more advertising is required in a market along many more competitors and their advertising clutter.
- Product differentiation. While a brand closely resembles other brands in its product class, more advertising (and as a result budget) is needed.
The main questions to be answered during the budget procedure are how much to spend and what impact is acceptable or expected. This procedure is difficult because measurement techniques of effectiveness hardly ever give precise answers.