Q.
b) Explain the methods that firms can use to set the total budget for promotion. (15 marks)
(15 marks, 2014 Q5b)
A.
Are you over budget on marketing promotions activities (e.g. advertising, public relations, direct selling and sales promotions) again this month? Maybe it’s time to revisit your budgeting methods to see if there is opportunity for improvement. To get the ball rolling, here are the six most common budgeting methods that I have observed in our region: (1) percentage method, (2) goal-and-task method (3) what’s-in-my-wallet method (4) based-on-my-competitor method, (5) co-op only method, (6) and zero method.
Percentage Method
This approach is the most common for organizations. This method involves setting a budget by percentage of sales, sales goals or gross markup. The percentage used can be derived from your company’s past performance and/or industry standards. This approach is usually the best option for most organizations because the goal is tied directly to increasing revenue. This method bodes well for creating a comprehensive annual plan.
Goal-and-Task Method
This approach is developed by defining specific goals, determining the tasks needed to achieve these goals and then estimating the costs of performing these tasks. This method is common with long-term objectives like increasing market-share or increasing brand name top-of-mind-awareness.
What’s-in-my-Wallet Method
This method involves planning marketing promotions month-to-month by “what’s available” rather than by “what’s the sales goal.” This approach may hold back revenue opportunities because of the lack of planning. However, this method is common because some companies look at marketing promotion as an expense rather than as an investment.
Based-on-my-Competitor Method
This method is based on a strategy to invest less, the same or more than a competitor. A company using this method may be at a disadvantage because they are at the mercy of their competition’s spending patterns rather than their own goals.
Co-op Only Method
This planning method involves limiting a budget to just the manufacturer’s cooperative (co-op) advertising support dollars. This may cause a disadvantage because the business using the co-op is limited by the manufacturer’s creative message strategy and available co-op funds.
Zero Method
This method involves keeping the marketing investment as close to zero as possible. Sometimes, this method is regretted, especially when the going out of business advertising works well to move inventory.
Whatever budgeting method for marketing promotions you choose for your organization, make sure to budget “time” to develop a comprehensive written plan to keep all parties involved on track.
Posted in Popular Posts, Strategy | Tagged business, marketing
Brief Summary:
[Property marketing usually uses the methods below:
Goal-and-Task method
A developer upon developing a piece of land, would have a limited product quantity and a certain length of duration to deliver the products. Hence, the stock in hand is zero and at start there is no revenue yet for the company. Thus, the percentage method would be very delusional as forecast sales may be too high, and promotional budget can derail the total company off its tracks. Before the product is sold, the company can incur too high promotional cost which is unnecessary.
The objective of the company is to spend to achieve, thus goal-and-task, a long-term plan to market and deliver the product (in years to come). This is a characteristic of the construction industry, where constant promotion and track record would spur interest in buying the company's product. A process of selling can be in months or years, if the developer is embarking on a gradual development timeline.
In property selling, it is usually long term. In such manner, a showroom promotion is one of the ways to gain acceptance and trust with the target buyers. This way, the buyer can see the actual product and the material build, feel and touch the end product. The promotional activity is thus tied to the completion of the showroom, the work-in-progress of the project and even the approval time of the authorities, following the Housing Development (Control & Licensing) Act 1966.
For example, mega developers like SP Setia, MahSing, MJC have phases of projects and thus, their promotional spending is designed in a way to tailor-made different timeline and types of products in launch. In this manner, the spending would be spread out and seasonal variables are taken into consideration as competitors can intercept the target market segment.
In the above condition, base-on-competitor method of budgeting may be used to fence off competition. This is especially so when the targeted market segment is similar, e.g. 'young working executives'. The ability to 'pull the crowd' is a vital step in achieve the sales. Take for instance, during weekends and holidays, more promotions of properties can be seen in shopping malls. This is naturally so as young families are out there shopping or enjoying leisure at entertainment places and shopping malls.
In this scenario, company in considering promotional activities would be driven by the target group - 'young working executives' who are crowding these spots. As similar competitors targeting this same group would do more promotion during this time, a bigger or crowd pulling activity (which would definitely cost more!) would be required to defend the market share. Therefore, base-on-competitor budgeting is also used.
Largely, promotional budget by developers is very cash dependent. Thus, some small scale developers would choose to develop their project in small scale, and do away with hefty promotional budgets. This can be said as 'Zero Method' or 'What's in Wallet Method'. However, it may also be seen as 'Goal and Task' method if the longer term is used.]
Ref:
MacDalton Berns. Marketing Advisor, Absolute Marketing Group. February 9, 2010, available at
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