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Promotional budgeting

by: Clara Kerrone

Promotional budgeting MKTG 477

Clara Kerrone
GPA 3.3
Promotion Management
Dr. Darrel Muehling

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About this Document

Promotion Management
Dr. Darrel Muehling
Class Notes
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This 4 page Class Notes was uploaded by Clara Kerrone on Wednesday March 11, 2015. The Class Notes belongs to MKTG 477 at Washington State University taught by Dr. Darrel Muehling in Fall. Since its upload, it has received 140 views. For similar materials see Promotion Management in Marketing at Washington State University.


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Date Created: 03/11/15
Promotional Budgeting Monday March 9 2015 1014 AM What do you need to know about promotional budgeting Budget items where the money goes Budgeting methodstechniques how the money is allocated Budget considerations amp effects factors that may in uence the budget decision Budget Items Creativeproduction Media Research Budgeting Methodstechniques commonly used 1 Percentage of sales promotional budget is set as a percentage of current or anticipated sales a Typically 25 nationally with companies like Nike McDonalds etc 2 All you can afford affordability a Sales revenue expenses advertising promotion amount 2 Arbitrary allocation not systematic its hit or miss Often done at the local level as compared to the national level Ask a nearby company to donate to help pay and they may say yes or no 3 Competitive parity try to budget with your competitor in mind Not budgeting the same amount as your competition its about the proportion of money a If McDonald39s increased their budget by 10 than you can assume that Wendy39s burger king etc would also increase their ad budget around 10 2 Objective and task a Set the promotional objective b Determine tasks to meet that objective how many ads banners etc do we need to meet the objective c Estimate the costs associated with those tasks we need 20 ads at x amount so the budget will be X d Set the budget accordingly Should the money spent on promotion be considered an quotinvestmentquot or an quotexpensequot Or does it matter One would assume you would want to spend money on advertising as an investment Expense a cost of doing business lnvestment attempting to achieve an objective As an expense 0 Percentage of sales the more money you have the more you39ll spend and vis versa This is bad when sales are low because you39ll stay low Reoccurring circle 0 Arbitrary allocation 0 All you can afford 0 Competitive parity sometimes wow it sucks that we have to increase our budget but I guess it s a necessary evil this is a real bummer expense As an investment 0 Competitive parity sometimes because they hope to accomplish something with the increase were excited to have the opportunity to increase our ad potential 0 Objective and task were hoping to ful ll our objective by spending this much money so it s a great opportunity Considerations when setting a promotional budget 1 Company policies and procedures often dictate the amount spent and method employed a The company may not want to do the method you want to do 2 Your advertising budget ad dollars spent is not the only factor in uencing sales a Product distribution strategies and price all in uence sales b Even the weather can in uence sales 2 Sales is not the only factor that is affected by the amount of money you spend on advertising a Communications objectives attitudes and preferences etc 2 It is difficult to estimate a salesresponse function curve to establish and ad expendituresales relationship 3 The advertising expenditure to sales relationship is dynamic ever changing a What if our nearest competitor goes out of business i The curve will rise up the Y axis Your budget hasn t changed but because there isn39t a competitor you will gain sales levels b What if our major competitor doubles their budget i The curve will lower on the Y axis Your budget hasn39t changed but because the competitor has doubled their sales you can assume they will start selling more and therefore that takes away from your sales levels 2 Budget effects a Nonlinear effect higher promotional expenditures do not necessarily lead to proportionally higher sales gures i How should I approach my budget differently because of this There is a point of diminishing returns where pro ts stops rising no matter how much you advertise There is not such thing as a linear relationship b Threshold effect promotional dollars may not have any noticeable effect until a certain expenditure level is reached i Save your money to an extent because if you aren39t spending more than point X it will not effect sales enough to be worth it How much are we spending before we get a noticeable effect That s the threshold point b Carryover effect the impact of promotional expenditures tends to take place over time i Advertise 2 for 1 margaritas last week and consumers will still remember this week that the deal is happening ii Doesn t occur any speci c point on the curve iii Carry over effects are attributed to 1 Delayed response see an ad today but don t necessarily buy the product immediately same day 2 Hold over consumers are bale to retain information in memory do not have to see the ad again before buying the product Other budget effects Decay effect in the absence of further promotion the effects of past promotional dollars on goodwill name awareness sales etc will be diminished 0 When looking at major advertisers this effect is the number one reason that advertisers spend more than they should Afraid that if they don39t spend enough decay will happen 0 This is a bad thing Competitor effect your competitors39 promotional programs and the amount of money they39re spending on them will in uence how effective your campaign will be 0 What happens if they go out of business double their budget etc all effects our budget 0 This is a bad thing Quality effect the effectiveness of your ad program is dependent upon the unique content presentation and placement of the promotion not solely on the dollars spent 0 Just because each agency has the same amount of money doesn39t mean they ll have the same effect 0 A good ad will have greater impact on consumers than will a bad ad


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