Budgets
How communications budgets affect sales
Communications budgeting methods
Factors influencing budgets
Budgeting for new brands/products
Sales response models depict the relationship between budget sizes and communication efforts.
Another way to model sales responses to communications efforts is the S-shaped relation
Even if communications effort is zero, there will be a certain level of sales, and a minimum investment is needed to enjoy any results of the communications programme and to increase sales.
Marketing communications are not the only marketing mix instrument influencing sales.
Prices, product line decisions and changes in the distribution strategy will also influence sales.
An effective marketing mix implies that synergy and interaction exist between the various marketing tools.
Communications efforts may have both an immediate short-term and a long-term effect on sales and market share.
communications as a long-term investment in goodwill.
Marginal budgeting analysis: invest resources as long as extra expenses are compensated by higher extra returns.
Inertia budgeting method: keep budgets constant year on year, while ignoring the market, competitive actions or consumer opportunities.
Arbitrary method: Whatever the general manager or managing director decides will be implemented.
Affordability method: ‘Leftover’ resources, after all input costs (human resources, operational and financial costs), are invested in communications.
Percentage of sales method: Budgets are defined as a percentage of the projected sales of the next year.
Fluctuate around an average of 5%
Competitive parity method: companies copy their competitors' budgets.
Objective & task method: starts from communications objectives and the resources that are needed to reach these planned goals.
frequently used in smaller companies and business-to-business contexts.
The smaller the targeted markets, the easier it is to reach the targets in a cost-efficient way.
Larger markets imply more dispersed target groups which are more difficult to reach and thus more expensive.
A number of organisational factors that have a potential influence on the budgeting decision can be identified:
the organisational structure (centralised vs decentralised, formalisation and complexity)
the use of experts such as consultants
the organisational hierarchy
preferences and experiences of decision-makers and decision-influencers
pressure on management to reach certain budgets.
Sometimes it is necessary to make adjustments to the planned budgets during the year or during the communications campaign.
If sales and profits lag behind projected and budgeted figures (planning gap), cutting communications efforts is often the easiest and fastest way to increase profits.
Unexpected opportunities or threats in the market
Contingencies
Economic recessions
The primary budgeting method for launching new brands or products should be the objective-and-task method.
a difficult budgeting method & also one that is not risk-free.
Examine the industry advertising-to-sales (A/S) ratio (advertising intensity) for the market in which a brand is to be launched.
The marketer may decide to set a budget that is higher than the industry average in order to make an impact.
Peckham’s 1.5 rule: setting the SOV of the brand at 1.5 times the desired SOM at the end of the brand’s first two years.
Quality of advertising depends on the creative work of advertising agencies and the media planning job of media agencies.