Chapter 10 – Integrated Marketing Communications
10.6 The Promotion Budget
LEARNING OBJECTIVES
- Understand different ways in which promotion budgets can be set.
- Understand how the budget can be allocated among different media.
The promotion budget is a critical factor when it comes to deciding which message strategies to pursue. Several methods can be used to determine the promotion budget. One of the simplest methods for determining the promotion budget is to devote a percentage of last year’s sales or the projected sales for the next year. This method does not take into account any changes in the market or unexpected circumstances. However, many companies use this method because it is simple and straightforward
The affordable method, or what you think you can afford, is a method used often by small businesses. Unfortunately, things often cost more than anticipated, and you may not have enough money. Many small businesses think they are going to have money for promotion, but they run out of money faster than anticipated, and cannot spend as much on promotion as they had hoped. A similar financial situation may have happened to you when you planned a weekend trip based on what you thought you could afford, and you found out during the trip that you did not have enough money to do all activities you planned on. As a result, you had to modify your plans and not do everything you planned.
Other companies may decide to use competitive parity, that is, they try to keep their promotional spending comparable to the competitors’ spend level. This is one way to keep a brand’s awareness at the same level as the competition. During a recession, some companies feel as if they must spend as much as, if not more than, their competitors to get customers to buy from them. Other companies are forced to cut back on their spending or pursue more targeted promotions. When Kmart faced bankruptcy, they cut back on expenditures, yet they kept their advertising flyers in Sunday newspapers to remain competitive with other businesses that had also used flyers.
A more rational and ideal approach is the objective and task method, whereby marketing managers first determine what they want to accomplish (objectives) with their communication. Then they determine what activities, commercials, sales promotions, and so on, are necessary to accomplish the objectives and the associated costs.
Measuring the Return on Marketing Investment (ROMI) ensures that the company continues to learn where to spend their dollars effectively. ROMI is calculated by dividing the incremental financial contribution generated by marketing investment divided by the marketing dollars spent (Haigh, 2020). Some companies calculate the ROMI of a specific campaign, channel or offer, while others calculate it on the total of all marketing costs. Whatever method the company uses, it is important to identify key benchmarks that reflect the marketing objectives and track them over time.‡
