Bottom-Up Budgeting

Total Budget Is Approved byTop Management

Cost of Activities are Budgeted

Activities to Achieve ObjectivesAre Planned

Promotional Objectives Are Set

Bottom-Up Budgeting

Objective and Task Method Payout Planning Quantitative Models

Objective and Task Method

It looks at the objectives for each activity and determines the cost of accomplishing each objectives.

Three steps: Defining the communications objectives to be

accomplished Determining the specific strategies and tasks

need to attain them Estimating the cost associated with performance

of these strategies and tasks

Objective and Task MethodEstablish Objectives(create awareness of new product among 20 percent of target market)

Establish Objectives(create awareness of new product among 20 percent of target market)

Determine Specific Tasks(advertise on market area television and radio and local newspapers)

Determine Specific Tasks(advertise on market area television and radio and local newspapers)

Estimate Costs Associated with Tasks(television, $575,000; radio, $225,000; newspaper, $175,000)

Estimate Costs Associated with Tasks(television, $575,000; radio, $225,000; newspaper, $175,000)

Objective and Task Method

The major of advantage of this method is that the budget is driven by the objectives to be attained.

The major disadvantage of this method is the difficulty of determining which tasks will be requires and the costs associated with each.

This method is not as easy to perform or as stable as some of the methods discussed earlier.

It is especially difficult for new product introduction (There is no past experience to use as a guide).

Payout Planning

The first months of a new product’s introduction typically require heavier-than-normal advertising and promotion appropriations to stimulate higher levels of awareness and subsequent trial.

The average share of advertising to sales ratio necessary to launch a new product successfully is approximately 1.5~2.0.

This means that a new entry should be spending at approximately twice the desired market share.

Figure 7-20

Share of Advertising/Sales Relationship

Share of Advertising/Sales Relationship

Payout Planning

The basic idea is to project the revenues the product will generate, as well as the costs it will incur, over 2 to 3 years.

Based on an expected rate of return, the payout plan will assist in determining how much advertising and promotions expenditure will be necessary when return might be expected.

Payout Planning

To determine how much to spend, marketers develop a payoutpayout planplan that determines the investment value of the advertising and promotion appropriation

Example of a three-year payout plan ($ millions)

Year 1 Year 2 Year 3Product sales 15.0 35.50 60.75Profit contribution(@$.50 per case) 7.5 17.75 30.38Advertising/promotions 15.0 10.50 8.50Profit (loss) (7.5) 7.25 21.88Cumulative profit (loss) (7.5) (0.25) 21.63

Quantitative Models

For the most part, these methods employ computer simulation models involving statistical techniques such as multiple regression analysis to determine the relative contribution of the advertising budget to sales.

Attempts to apply quantitative models to budgeting have met with limited success.

Such methods do have merit but may need more refinement before achieving widespread success.

Allocating the Budget

Allocating to IMC elements Client/agency policies Market size Market potential Market share goals Economics of scale in advertising Organizational characteristics

Allocating to IMC Elements

Allocating to IMC Elements

Share of Voice Effect

Decrease–find a defensible nicheDecrease–find a defensible niche Increase to defendIncrease to defend

Attack with large SOV premium

Attack with large SOV premium

Maintain modest spending premiumMaintain modest

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Hig

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HighLowYour Share of Market