Lecture 4 - Advertising Budget Marketing Notes | EduRev

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Marketing : Lecture 4 - Advertising Budget Marketing Notes | EduRev

 Page 1


Advertising Budget 
 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
Course:  Commerce 
 
Subject:  Advertising 
 
Lesson: Advertising Budget 
 
Course Developer: Nupur Bhati  
 
College/Department: Keshav Mahavidyalaya, Business 
Studies 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Page 2


Advertising Budget 
 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
Course:  Commerce 
 
Subject:  Advertising 
 
Lesson: Advertising Budget 
 
Course Developer: Nupur Bhati  
 
College/Department: Keshav Mahavidyalaya, Business 
Studies 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              2 
 
 
 
 
Table of Contents: 
 
 Lesson: Advertising Budget 
1. Learning Outcomes 
2. Introduction 
3. Meaning of Advertising Budget 
4. Process of setting Advertising Budget 
5. Approaches for preparing Advertising Budget 
 5.1 Top-Down Approach 
5.1.1 Affordable Method 
5.1.2 Arbitrary Method 
5.1.3  Market Share Method 
5.1.4 Percentage of Sales Method 
5.1.5 Fixed-sum-per unit Method 
5.1.6 Competitive Parity Method 
5.1.7 Return on Investment 
 5.2 Build up Approach 
  5.2.1 Objective and Task method 
5.2.2 Payout Planning 
5.2.3 Quantitative models 
6. Factors influencing Setting of Advertising Budget 
Summary 
Exercises 
Glossary 
References 
 
1. Learning Outcomes: 
After you have read this chapter, you should be able to:  
 
? explain the term advertising budget, 
? state the components of advertising budget, 
? understand the process of designing an advertising budget,  
? differentiate between different approaches to prepare advertising budget, 
? understand various factors influencing advertising budget decisions,  
? explain different methods of setting advertising budget, 
? create an advertising budget on your own. 
 
 
 
 
2. Introduction 
Figure 1: Budget 
Page 3


Advertising Budget 
 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
Course:  Commerce 
 
Subject:  Advertising 
 
Lesson: Advertising Budget 
 
Course Developer: Nupur Bhati  
 
College/Department: Keshav Mahavidyalaya, Business 
Studies 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              2 
 
 
 
 
Table of Contents: 
 
 Lesson: Advertising Budget 
1. Learning Outcomes 
2. Introduction 
3. Meaning of Advertising Budget 
4. Process of setting Advertising Budget 
5. Approaches for preparing Advertising Budget 
 5.1 Top-Down Approach 
5.1.1 Affordable Method 
5.1.2 Arbitrary Method 
5.1.3  Market Share Method 
5.1.4 Percentage of Sales Method 
5.1.5 Fixed-sum-per unit Method 
5.1.6 Competitive Parity Method 
5.1.7 Return on Investment 
 5.2 Build up Approach 
  5.2.1 Objective and Task method 
5.2.2 Payout Planning 
5.2.3 Quantitative models 
6. Factors influencing Setting of Advertising Budget 
Summary 
Exercises 
Glossary 
References 
 
1. Learning Outcomes: 
After you have read this chapter, you should be able to:  
 
? explain the term advertising budget, 
? state the components of advertising budget, 
? understand the process of designing an advertising budget,  
? differentiate between different approaches to prepare advertising budget, 
? understand various factors influencing advertising budget decisions,  
? explain different methods of setting advertising budget, 
? create an advertising budget on your own. 
 
 
 
 
2. Introduction 
Figure 1: Budget 
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              3 
 
 
 
 
Once the advertising objectives have been established, the next important decision is to 
determine how much should be spent on advertising. This decision basically pertains to 
advertising budget decisions that encompasses all those areas that affect significantly the 
business due to advertising spending. It includes (i) fixing the total amount of money a 
marketer would allocate for advertising, (ii) define various efforts it will implement 
constrained by the total allocation of money, and (iii) the apportionment of funds to these 
various efforts of an advertiser during a specified time period. These allocation decisions can 
be with regard to different products, divisions, product variations, brands of the same 
product, territories, zones, etc.  
 
Budget basically means a financial plan and a complete list of company's revenues and 
expenses. After following the budget guidelines, the company can achieve reasonable profits 
and increase its market share. Setting of advertising budget is preceded by setting of 
advertising objectives. While objectives provides basis for functional planning, budget 
relates to financial planning which translates a plan of action into monetary units.  
 
The firm’s advertising and promotions budget size can vary from a few thousand rupees to 
more than a billion. Whenever the firms irrespective of their size spend a large amount of 
money on advertising, they expect such expenditures to accomplish their predetermined 
objectives. This lesson will facilitate an understanding of advertising budget and also the 
factors affecting the advertising budget decisions. The various steps involved in 
establishment of advertising budget have also been discussed. 
 
3. Meaning of Advertising Budget 
 
Advertising Budget is basically a quantitative expression of the amount of money that has to 
be spent for advertising in the coming period. It is an estimate of the funds needed for 
meeting advertising objectives of the firm that are developed in line to the company’s 
objectives, vision and mission. It also involves allocation of monetary resources among 
different kinds of advertising plans, media, sales territories, products and selling activities 
etc. This clearly depicts how, where, and for what purposes the funds would be appropriated 
and utilized. 
 
The advertising budget of a business is developed on the basis of advertising objectives and 
goals of the company that are dependent on marketing goals and objectives of the 
company. But the marketing planner adopts this strategy only if the funds are available. The 
marketer evaluates the amount of money that would be needed to achieve the established 
Page 4


Advertising Budget 
 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
Course:  Commerce 
 
Subject:  Advertising 
 
Lesson: Advertising Budget 
 
Course Developer: Nupur Bhati  
 
College/Department: Keshav Mahavidyalaya, Business 
Studies 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              2 
 
 
 
 
Table of Contents: 
 
 Lesson: Advertising Budget 
1. Learning Outcomes 
2. Introduction 
3. Meaning of Advertising Budget 
4. Process of setting Advertising Budget 
5. Approaches for preparing Advertising Budget 
 5.1 Top-Down Approach 
5.1.1 Affordable Method 
5.1.2 Arbitrary Method 
5.1.3  Market Share Method 
5.1.4 Percentage of Sales Method 
5.1.5 Fixed-sum-per unit Method 
5.1.6 Competitive Parity Method 
5.1.7 Return on Investment 
 5.2 Build up Approach 
  5.2.1 Objective and Task method 
5.2.2 Payout Planning 
5.2.3 Quantitative models 
6. Factors influencing Setting of Advertising Budget 
Summary 
Exercises 
Glossary 
References 
 
1. Learning Outcomes: 
After you have read this chapter, you should be able to:  
 
? explain the term advertising budget, 
? state the components of advertising budget, 
? understand the process of designing an advertising budget,  
? differentiate between different approaches to prepare advertising budget, 
? understand various factors influencing advertising budget decisions,  
? explain different methods of setting advertising budget, 
? create an advertising budget on your own. 
 
 
 
 
2. Introduction 
Figure 1: Budget 
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              3 
 
 
 
 
Once the advertising objectives have been established, the next important decision is to 
determine how much should be spent on advertising. This decision basically pertains to 
advertising budget decisions that encompasses all those areas that affect significantly the 
business due to advertising spending. It includes (i) fixing the total amount of money a 
marketer would allocate for advertising, (ii) define various efforts it will implement 
constrained by the total allocation of money, and (iii) the apportionment of funds to these 
various efforts of an advertiser during a specified time period. These allocation decisions can 
be with regard to different products, divisions, product variations, brands of the same 
product, territories, zones, etc.  
 
Budget basically means a financial plan and a complete list of company's revenues and 
expenses. After following the budget guidelines, the company can achieve reasonable profits 
and increase its market share. Setting of advertising budget is preceded by setting of 
advertising objectives. While objectives provides basis for functional planning, budget 
relates to financial planning which translates a plan of action into monetary units.  
 
The firm’s advertising and promotions budget size can vary from a few thousand rupees to 
more than a billion. Whenever the firms irrespective of their size spend a large amount of 
money on advertising, they expect such expenditures to accomplish their predetermined 
objectives. This lesson will facilitate an understanding of advertising budget and also the 
factors affecting the advertising budget decisions. The various steps involved in 
establishment of advertising budget have also been discussed. 
 
3. Meaning of Advertising Budget 
 
Advertising Budget is basically a quantitative expression of the amount of money that has to 
be spent for advertising in the coming period. It is an estimate of the funds needed for 
meeting advertising objectives of the firm that are developed in line to the company’s 
objectives, vision and mission. It also involves allocation of monetary resources among 
different kinds of advertising plans, media, sales territories, products and selling activities 
etc. This clearly depicts how, where, and for what purposes the funds would be appropriated 
and utilized. 
 
The advertising budget of a business is developed on the basis of advertising objectives and 
goals of the company that are dependent on marketing goals and objectives of the 
company. But the marketing planner adopts this strategy only if the funds are available. The 
marketer evaluates the amount of money that would be needed to achieve the established 
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              4 
 
goals and objectives and develops the budget. The procedure of preparing budget gets 
reversed, when enough funds are not available i.e. budgets get established first and then 
goals and objectives are modified according to funds.  
 
The setting of advertising budget is based on the calculation of total amount of money 
required to achieve advertising objectives of a firm. Advertising manager and marketing 
manager of the company prepare it. Then it is passed through the approval of top 
management for its implementation. 
 
However, in small business houses that do not have enough amounts of resources to form 
separate advertising department, the work responsibility of preparing advertising budget 
rests with the marketing manager of the top management. The limiting factor determines 
the size of the advertising campaign. 
 
The periodicity of advertising budget varies from a period of one month or one quarter or a 
half-year period to the entire financial year. Sometimes the budget period may extend to 
the entire venture if it is a short time venture or programme. 
Value Addition 1: Definitions 
Advertising Budget 
Budget- A budget is a quantitative, financial plan for a forthcoming time period. It is an 
estimate based on the past. There are different types of budgets, for example, sales 
budget and purchase budget.  
 
According to Campbell R. Harvey - “A budget is in balance if revenues equal 
expenditures, in deficit if the person or company must resort to borrowing to meet 
expenses, and in surplus if money is left over to be used for savings or expansion." 
 
Similarly, there is an advertising budget. An advertising budget spells out the 
estimated advertising expenditure on various aspects of advertising, namely, 
advertising design, copy, message creation, and media and so on. To be realistic, a 
budget must be in relation to the expected revenue. 
"An estimation of a company's promotional expenditures over a period of time. An 
advertising budget is the money a company is willing to set aside to accomplish its 
marketing objectives. When creating the advertising budget, a company must weigh 
the trade-offs between spending one additional advertising rupee with the amount of 
revenue that dollar will bring in as revenue." 
“The advertising budget of a business typically grows out of the marketing goals and 
objectives of the company, although fiscal realities can play a large part as well, 
especially for new and/or small business enterprises." 
Source: http://financial-dictionary.thefreedictionary.com/budget 
http://www.investopedia.com/terms/a/advertising-budget.asp#ixzz2GKuxAKtw 
http://www.answers.com/topic/advertising-budget#ixzz2GKwW2wST 
 
Advertising Budget is an investment for future. Traditionally, the funds allocated for the 
advertising activities were considered waste of resources. Also, expenses incurred on 
advertising activities were considered as an item of current expenditure whose output were 
assumed to reflect only on current business transactions or activities. However, now it is 
Page 5


Advertising Budget 
 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
Course:  Commerce 
 
Subject:  Advertising 
 
Lesson: Advertising Budget 
 
Course Developer: Nupur Bhati  
 
College/Department: Keshav Mahavidyalaya, Business 
Studies 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              2 
 
 
 
 
Table of Contents: 
 
 Lesson: Advertising Budget 
1. Learning Outcomes 
2. Introduction 
3. Meaning of Advertising Budget 
4. Process of setting Advertising Budget 
5. Approaches for preparing Advertising Budget 
 5.1 Top-Down Approach 
5.1.1 Affordable Method 
5.1.2 Arbitrary Method 
5.1.3  Market Share Method 
5.1.4 Percentage of Sales Method 
5.1.5 Fixed-sum-per unit Method 
5.1.6 Competitive Parity Method 
5.1.7 Return on Investment 
 5.2 Build up Approach 
  5.2.1 Objective and Task method 
5.2.2 Payout Planning 
5.2.3 Quantitative models 
6. Factors influencing Setting of Advertising Budget 
Summary 
Exercises 
Glossary 
References 
 
1. Learning Outcomes: 
After you have read this chapter, you should be able to:  
 
? explain the term advertising budget, 
? state the components of advertising budget, 
? understand the process of designing an advertising budget,  
? differentiate between different approaches to prepare advertising budget, 
? understand various factors influencing advertising budget decisions,  
? explain different methods of setting advertising budget, 
? create an advertising budget on your own. 
 
 
 
 
2. Introduction 
Figure 1: Budget 
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              3 
 
 
 
 
Once the advertising objectives have been established, the next important decision is to 
determine how much should be spent on advertising. This decision basically pertains to 
advertising budget decisions that encompasses all those areas that affect significantly the 
business due to advertising spending. It includes (i) fixing the total amount of money a 
marketer would allocate for advertising, (ii) define various efforts it will implement 
constrained by the total allocation of money, and (iii) the apportionment of funds to these 
various efforts of an advertiser during a specified time period. These allocation decisions can 
be with regard to different products, divisions, product variations, brands of the same 
product, territories, zones, etc.  
 
Budget basically means a financial plan and a complete list of company's revenues and 
expenses. After following the budget guidelines, the company can achieve reasonable profits 
and increase its market share. Setting of advertising budget is preceded by setting of 
advertising objectives. While objectives provides basis for functional planning, budget 
relates to financial planning which translates a plan of action into monetary units.  
 
The firm’s advertising and promotions budget size can vary from a few thousand rupees to 
more than a billion. Whenever the firms irrespective of their size spend a large amount of 
money on advertising, they expect such expenditures to accomplish their predetermined 
objectives. This lesson will facilitate an understanding of advertising budget and also the 
factors affecting the advertising budget decisions. The various steps involved in 
establishment of advertising budget have also been discussed. 
 
3. Meaning of Advertising Budget 
 
Advertising Budget is basically a quantitative expression of the amount of money that has to 
be spent for advertising in the coming period. It is an estimate of the funds needed for 
meeting advertising objectives of the firm that are developed in line to the company’s 
objectives, vision and mission. It also involves allocation of monetary resources among 
different kinds of advertising plans, media, sales territories, products and selling activities 
etc. This clearly depicts how, where, and for what purposes the funds would be appropriated 
and utilized. 
 
The advertising budget of a business is developed on the basis of advertising objectives and 
goals of the company that are dependent on marketing goals and objectives of the 
company. But the marketing planner adopts this strategy only if the funds are available. The 
marketer evaluates the amount of money that would be needed to achieve the established 
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              4 
 
goals and objectives and develops the budget. The procedure of preparing budget gets 
reversed, when enough funds are not available i.e. budgets get established first and then 
goals and objectives are modified according to funds.  
 
The setting of advertising budget is based on the calculation of total amount of money 
required to achieve advertising objectives of a firm. Advertising manager and marketing 
manager of the company prepare it. Then it is passed through the approval of top 
management for its implementation. 
 
However, in small business houses that do not have enough amounts of resources to form 
separate advertising department, the work responsibility of preparing advertising budget 
rests with the marketing manager of the top management. The limiting factor determines 
the size of the advertising campaign. 
 
The periodicity of advertising budget varies from a period of one month or one quarter or a 
half-year period to the entire financial year. Sometimes the budget period may extend to 
the entire venture if it is a short time venture or programme. 
Value Addition 1: Definitions 
Advertising Budget 
Budget- A budget is a quantitative, financial plan for a forthcoming time period. It is an 
estimate based on the past. There are different types of budgets, for example, sales 
budget and purchase budget.  
 
According to Campbell R. Harvey - “A budget is in balance if revenues equal 
expenditures, in deficit if the person or company must resort to borrowing to meet 
expenses, and in surplus if money is left over to be used for savings or expansion." 
 
Similarly, there is an advertising budget. An advertising budget spells out the 
estimated advertising expenditure on various aspects of advertising, namely, 
advertising design, copy, message creation, and media and so on. To be realistic, a 
budget must be in relation to the expected revenue. 
"An estimation of a company's promotional expenditures over a period of time. An 
advertising budget is the money a company is willing to set aside to accomplish its 
marketing objectives. When creating the advertising budget, a company must weigh 
the trade-offs between spending one additional advertising rupee with the amount of 
revenue that dollar will bring in as revenue." 
“The advertising budget of a business typically grows out of the marketing goals and 
objectives of the company, although fiscal realities can play a large part as well, 
especially for new and/or small business enterprises." 
Source: http://financial-dictionary.thefreedictionary.com/budget 
http://www.investopedia.com/terms/a/advertising-budget.asp#ixzz2GKuxAKtw 
http://www.answers.com/topic/advertising-budget#ixzz2GKwW2wST 
 
Advertising Budget is an investment for future. Traditionally, the funds allocated for the 
advertising activities were considered waste of resources. Also, expenses incurred on 
advertising activities were considered as an item of current expenditure whose output were 
assumed to reflect only on current business transactions or activities. However, now it is 
Advertising Budget 
Institute of Lifelong Learning, University of Delhi.                              5 
 
widely accepted that advertising expenditure is an item of capital expenditure and will not 
only generate more revenues in current business activities but also in the future 
transactions. It is rather an investment made today in order to reap more benefits in future.  
 
In real business world, an effective advertising campaign is capable of achieving many of 
organizational goals including increase in sales, building strong and improved brand image, 
attaining improved credibility of the organization, increase in market share, maintaining 
customer loyalty etc. which are the real aspirations of all kinds of owners. 
 
Advertising budget varies in terms of size, divisions and levels, method of creation, 
approach of preparing and financial resources from company to company depending upon 
their working style, goals and objectives, availability of funds, type of products/services, 
level of geographical presence etc. Some companies spend large amount of available funds 
on advertising e.g. FMCG companies like soap and detergents. Such companies producing 
and selling products like Rin, Nirma, Ariel, Surf need to spend more on advertising; while 
some spend less or negligible amount on advertising for example, the companies in the 
same soap and detergent industry producing and selling 555, Henko, Ghari etc. 
 
Value Addition 2: Activity 
 Advertising Expenditure 
Collect information on advertising expenditure for the above products or companies 
offering them from their web sites, or retail stores selling them or newspapers/ 
magazines and categorize them into ‘Huge Advertising Expenditure’ and ‘small 
Advertising Expenditure’.   
Similarly try to find out 5 companies or products, other than the above that spend 
substantial or negligible amount on advertising and put them into these categories.           
 
Nevertheless, the growing significance of advertising in the recent times has resulted in 
massive spending on advertising by the companies in India and worldwide. This has led to 
the transition of advertising from a service to a full-fledged industry. 
 
There are other popular advertising and marketing media in addition to print and television 
that is radio, cable TV, direct mail and outdoor advertisements. 
The topmost ad spenders are FMCG companies such as Unilever, P&G, ITC and PepsiCo and 
also some automotive companies like Maruti and HeroHonda. These companies are spending 
large amount of money that is running into hundreds of cr. And therefore they have 
incredible bargaining power over their ad agencies. 
 
The new and innovative advertisement and marketing media in India are mobile 
advertisements, Internet marketing, direct calling (that is meant for financial services) and 
new FM radio (for local businesses). In India the advertising industry is showing increasing 
growth by an average rate of 10-12% per annum. 
India is going to be the 5
th
 in position in the fastest growing ad economy in the world by 
2013. 
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