METHODS FOR SETTING PROMOTION BUDGETS 4
Methodsfor Setting Promotion Budgets
Methodsfor Setting Promotion Budgets
Promotionand advertisements are crucial aspects of a business as they areinvolved with maintain the brand name and the growth of a business.As a result having a budget for promotion is one of the mostimportant aspects of a business. Setting up a promotion budget is atough task as business has to set aside some funds for promoting acompany’s products or services(Investopedia,2015).It is important to have a balance between spending a lot and barelyallocating enough money for promotion activities. This is becausehaving a small budget may cut into the company’s revenue while hugebudget may hurt the company’s profits. In this essay, the authorwill discuss six methods of setting the promotion budgets. Themethods are namely: the percentage method, what’s in my walletmethod, goal and task method, based on my competitor method, the zeromethod and the co-op only method.
Thepercentage method is probably one of the most common methods used inorganizations. The percentage method involves setting up the budgetby the percentage of sales as the name suggests. This can be derivedby evaluating the company’s or industry standards in terms of theirpercentage. This method is most preferred because the goals of theorganization are tied to the revenue. In the percentage method,forecasted or past sales can be used to arrive at thepercentages(Tanner& Raymond, 2013).The what’s in my wallet method involves the use of promotionbudgets depending on the funds that are available as opposed tohaving some pre-determined goals. This method is also known as theaffordability method. This is because most companies work with whatthey have and some adjustments might be required when cost changesoccur(Kotler& Gary, 2014).The lack of planning may eventually hurt the company due to missedrevenue opportunities. This method is popular because companiesexpense promotion budgets.
Thegoal and task method is used when companies have specific goals anddetermine a specific task and the method of achieving the goals.Consequently, a budget is set up by estimating the cost of theassigned tasks. The cost of performing the tasks are estimated andsummed up in order to create a promotional budget(AmericaMarketing Association, 2014).The based on my competitor method is also known as the competitiveparity method. In this method, the promotional budget is designed orallocated by considering the competitor’s budget. This promotionalbudget method is usually used in order to keep up with thecompetitors in the market as well as ensuring that the product is inthe consumer’s mind. Depending on the economic cycles, somebusiness may opt to keep their promotion budget in times ofrecessions or when their business is going through a tough financialperiod in order to stay competitive. The co-op method involves usinga budget that is in line with the manufacturer’s advertisingdollars. This limits promotion as it is limited to the manufacturer’smarketing strategy(Berns, 2010).The zero method involves maintaining the company’s marketinginvestment close to zero. The zero method of preparing the budget issometimes not preferred when the business plans to shut down itsoperations but wants to appear to be doing well in the eyes of thepublic. The zero method is usually used when used for moving theremaining inventory so that the company can get rid of all itsmerchandise and inventory.
AmericaMarketing Association. (2014). Promotion.Retrieved March 17, 2015, from America Marketing Association:https://www.ama.org/resources/Pages/Promotion.aspx
Berns,M. (2010, February 9). BudgetingMethods for Marketing Promotions.Retrieved March 16, 2015, from Absolute:http://www.absolutemg.com/2010/02/09/budgeting-methods-for-marketing-promotions/
Investopedia.(2015). PromotionalBudget.Retrieved March 16, 2015, fromhttp://www.investopedia.com/terms/p/promotional-budget.asp
Kotler,P., & Gary, A. (2014). Principlesof Marketing.New Jersey: Pearson.
Tanner,J. F., & Raymond, M. A. (2013). Principlesof Marketing.Flat World Knowledge.