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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. As William Cohen stated in The Entrepreneur and
Small Business Problem Solver, "In some cases your budget will be established before goals
and objectives due to your limited resources. It will be a given, and you may have to modify
your goals and objectives. If money is available, you can work the other way around and see
how much money it will take to reach the goals and objectives you have established." Along
with marketing objectives and financial resources, the small business owner also needs to
consider the nature of the market, the size and demographics of the target audience, and the
position of the advertiser's product or service within it when putting together an advertising
budget.
In order to keep the advertising budget in line with promotional and marketing goals, an
advertiser should answer several important budget questions:
1. Who is the target consumer? Who is interested in purchasing the advertiser's product
or service, and what are the specific demographics of this consumer (age,
employment, sex, attitudes, etc.)? Often it is useful to compose a consumer profile to
give the abstract idea of a "target consumer" a face and a personality that can then be
used to shape the advertising message.
2. Is the media the advertiser is considering able to reach the target consumer?
3. What is required to get the target consumer to purchase the product? Does the
product lend itself to rational or emotional appeals? Which appeals are most likely to
persuade the target consumer?
4. What is the relationship between advertising expenditures and the impact of
advertising campaigns on product or service purchases? In other words, how much
profit is earned for each dollar spent on advertising?
Answering these questions will provide the advertiser with an idea of the market conditions,
and, thus, how best to advertise within these conditions. Once this analysis of the market
situation is complete, an advertiser has to decide how the money dedicated to advertising is to
be allocated.
Budgeting Methods
There are several allocation methods used in developing a budget. The most common are
listed below:
With this method, a business needs to first establish concrete marketing objectives, which are
often articulated in the "selling proposal," and then develop complimentary advertising
objectives, which are articulated in the "positioning statement." After these objectives have
been established, the advertiser determines how much it will cost to meet them. Of course,
fiscal realities need to be figured into this methodology as well. Some objectives (expansion
of area market share by 15 percent within a year, for instance) may only be reachable through
advertising expenditures that are beyond the capacity of a small business. In such cases, small
business owners must scale down their objectives so that they reflect the financial situation
under which they are operating.
MARKET SHARE METHOD. Similar to competitive parity, the market share method
bases its budgeting strategy on external market trends. With this method a business equates
its market share with its advertising expenditures. Critics of this method contend that
companies that use market share numbers to arrive at an advertising budget are ultimately
predicating their advertising on an arbitrary guideline that does not adequately reflect future
goals.
UNIT SALES METHOD. This method takes the cost of advertising an individual item
and multiplies it by the number of units the advertiser wishes to sell.
ALL AVAILABLE FUNDS METHOD. This aggressive method involves the allocation of
all available profits to advertising purposes. This can be risky for a business of any size, for it
means that no money is being used to help the business grow in other ways (purchasing new
technologies, expanding the work force, etc.). Yet this aggressive approach is sometimes
useful when a start-up business is trying to increase consumer awareness of its products or
services. However, a business using this approach needs to make sure that its advertising
strategy is an effective one, and that funds which could help the business expand are not
being wasted.
AFFORDABLE METHOD. With this method, advertisers base their budgets on what they
can afford. Of course, arriving at a conclusion about what a small business can afford in the
realm of advertising is often a difficult task, one that needs to incorporate overall objectives
and goals, competition, presence in the market, unit sales, sales trends, operating costs, and
other factors.
Media Scheduling
Once a business decides how much money it can allocate for advertising, it must then decide
where it should spend that money. Certainly the options are many, including print media
(newspapers, magazines, direct mail), radio, television (ranging from 30-second ads to 30-
minute infomercials), and the Internet. The mix of media that is eventually chosen to carry
the business's message is really the heart of the advertising strategy.
SELECTING MEDIA. The target consumer, the product or service being advertised, and
cost are the three main factors that dictate what media vehicles are selected. Additional
factors may include overall business objectives, desired geographic coverage, and availability
(or lack thereof) of media options.
SCHEDULING CRITERIA. As discussed by Hiam and Schewe, there are three general
methods advertisers use to schedule advertising: the Continuity, Flighting, and Massed
methods
Of course, small business owners must resist the temptation to choose an advertising medium
only because it is cost effective. In addition to providing a good value, the medium must be
able to deliver the advertiser's message to present and potential customers.
Advertising is only part of a larger promotional mix that also includes publicity, sales
promotion, and personal selling. When developing an advertising budget, the amount spent
on these other tools needs to be considered. A promotional mix, like a media mix, is
necessary to reach as much of the target audience as possible. As Gerald E. Hills stated in
"Market Opportunities and Marketing" in The Portable MBA in Entrepreneurship, "When
business owners think about the four promotion tools, it becomes obvious why promotion
managers must use a mix. There are clear trade-offs to be made between the tools."
The choice of promotional tools depends on what the business owner is attempting to
communicate to the target audience. Public relations-oriented promotions, for instance, may
be more effective at building credibility within a community or market than advertising,
which many people see as inherently deceptive. Sales promotion allows the business owner to
target both the consumer as well as the retailer, which is often necessary for the business to
get its products stocked. Personal selling allows the business owner to get immediate
feedback regarding the reception of the business' product. And as Hills pointed out, personal
selling allows the business owner "to collect information on competitive products, prices, and
service and delivery problems."
Further Reading:
Bly, Robert W. Advertising Manager's Handbook. Englewood Cliffs, NJ: Prentice Hall,
1993.
Burnett, Leo. The Leo Burnett Worldwide Advertising Fact Book. Chicago: Triumph Books,
1994.
Clark, Scott. "Do the Two-Step with Advertising Budget." Memphis Business Journal. March
3, 2000.
Cohen, William. The Entrepreneur and Small Business Problem Solver. 2d ed. New York:
John Wiley & Sons, 1990.
Silver, Jonathan. "Advertising Doesn't Have to Break Your Budget." Washington Business
Journal. May 1, 1998.