Overview
This lecture explains the main methods for setting a promotion budget and discusses how budget allocation decisions relate to the changing media landscape.
Methods for Setting the Promotion Budget
- The percent of sales method sets the budget as a fixed percentage of last year's or projected sales.
- The affordable method bases the budget on what the company thinks it can afford; often used by small businesses.
- The competitive parity method sets the budget to match competitors' promotional spending levels.
- The objective and task method sets objectives, determines necessary activities to achieve them, then estimates costs for the total budget.
Allocating the Promotion Budget
- After determining the budget amount, marketers decide how to divide funds among different media channels.
- Most spending still goes to traditional media, but budgets are shifting toward digital and mobile marketing.
- Mobile marketing enables engaging specific audiences through texting and multimedia messages.
- Younger consumers are more receptive to mobile advertising, which is rapidly growing as a budget category.
Considerations and Trends
- The percentage of sales and competitive parity methods are common for their simplicity but may ignore market changes.
- Affordable method can result in not having enough funds for effective promotion if costs are underestimated.
- Objective and task approach is more rational, ensuring resources align with marketing goals.
- Increasing use of mobile and digital channels affects how companies allocate their promotion budgets globally.
Key Terms & Definitions
- Percent of Sales Method — Sets promotion budget as a specific percentage of sales.
- Affordable Method — Budgets based on what a company believes it can afford to spend.
- Competitive Parity — Budgets set to match or approximate competitors’ spending.
- Objective and Task Method — Budgets determined by setting objectives, defining tasks, and estimating their costs.
- Mobile Marketing — Promotional activities designed for mobile devices to reach consumers on the go.
Action Items / Next Steps
- Be able to explain four different ways to set a promotion budget.
- Prepare a definition and example of mobile marketing for discussion.
- Review trends in media spending and consider how they affect promotional strategies.