Unformatted text preview: Chapter 5
$$$$$$ Budget $$$$$$ 2 Approaches to Budgeting TopDown: Senior exec. Establishes the budget for entire corp. $ is then allocated to the various divisions/dept. BottomUp: Considers a firm's goals & objectives & assigns a portion of the budget to meet those objectives. Also called the buildup approach TopDown Approaches
All one can afford (over/underestimate) Arbitrary Allocation (weakest) Competitive Parity (competition) Percentage of Sales (most common) Return on Investment (long term) BottomUp Approaches Objective and Task Payout Planning Quantitative Mathematical Models 1. 2. 3. Budget & planning go hand in hand Consists of 3 Steps: Stating the promotional & communications objectives to be achieved. Developing the strategies & tasks necessary to accomplish objectives. Estimating the costs associated w/ implementing the strategies/tasks Objective & Task Payout Planning Used in introducing new products which require 1 1/2 to 2 times more promotional expenditure Plan revenues are estimated for a 3 5 year period. Quantitative Mathematical Models Through the development of computer technology & economic forecasting models, this approach has been introduced to the marketing process Currently time consuming & costly Allocating the Promotion Budget Direct Marketing :included in advertising or can be separate, depending on the company Personal Selling (usually HR budget) consists mainly of salaries (hourly, salary, bonuses) Advertising Agency Compensation
Commission (Industry standard: 15%) Easy to calculate; can lead to unfair practices Fee Arrangements (fixed or contract) Fixed: monthly fee, usually longterm relationship Contract: Shortterm, specific job or task CostPlus: Rate based on costs + profit margin (% of total costs) Advertising Agency Compensation Percentage charges: (markup) Used for outside suppliers such as freelance graphic artists to cover administrative costs. Incentivebased: (predetermined goal) how performance faired. Example: event bonus Cooperative Arrangements
Comarketing (range of activities, higher profits) Cobranding (credit card examples) Cooperative advertising (share costs for an ad) Sponsorship/cosponsorship Main sponsor has event named after it, pays more Cosponsoring advertises & pays a portion Strategic Alliances (share info and capital) Advantages Both parties get extra exposure Images of both manufacturer & retailer are enhanced. Both benefit from lower ad rates & better placement in publications Disadvantages For Manufac. Manufacturer Identity can be lost in the layout Accounting records are a business expense Stores typically are late in sending documentation Mfrg. may be limited in control including merchandise placement Retailers my take advantage Competition my over stimulate promotional budgets Nordstroms Ads Disadvantages For Retailers $ becomes more important than actual merchandise Mfr demands not fitting w/ retailer's style Mfr's message not consistent w/ retailer's Excluding promotion director Coop contracts are difficult to execute ...
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