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Impact of Promotion Budget on Allocation

Several factors should be considered when making marketing communication and budget allocation decisions: 1) The stage of the product life cycle, as products at different stages require different levels of marketing budget. Products in the growth stage typically require more advertising budget, while products in maturity stages require more sales promotion budget. 2) The type of industry, market, and customers, as these factors impact the type of products and required marketing. 3) The company's relative market share, as companies with large shares focus more on long-term advertising to build their image, while smaller companies focus more on short-term sales promotion to penetrate the market. 4) Proper allocation between advertising and sales promotion can have a

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206 views2 pages

Impact of Promotion Budget on Allocation

Several factors should be considered when making marketing communication and budget allocation decisions: 1) The stage of the product life cycle, as products at different stages require different levels of marketing budget. Products in the growth stage typically require more advertising budget, while products in maturity stages require more sales promotion budget. 2) The type of industry, market, and customers, as these factors impact the type of products and required marketing. 3) The company's relative market share, as companies with large shares focus more on long-term advertising to build their image, while smaller companies focus more on short-term sales promotion to penetrate the market. 4) Proper allocation between advertising and sales promotion can have a

Uploaded by

aleman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

What factors would you consider when making marketing communication and budget

allocation decisions?

Allocation of budget for marketing communication is a difficult task. Many companies may see
the budget for marketing communication just as an expenditure and not as an investment (Mihir
et al., 2014). When companies start to lose revenue the first expenditure cut will be the
marketing budget. Understanding the overall objective and purpose of marketing communication
and the factors that need to be considered before allocating a budget is crucial.

The next step is what percentage of this budget is allocated to each component of marketing
communication like adverting, sales promotion, public relations and publicity, direct marketing,
personal selling, and others. Doyle & Saunders (1990) showed that proper allocation of
marketing communications budget can have a bigger impact on profit than the size of the budget.

Several factors affect marketing communication budget allocation one of which is the stage of
the product. Products at different stages of the product life cycle will have differing marketing
budget requirements. Based on the literature review by (Low & Mohr, 1991) factors like
organization structure, power, and politics in the organization, and the use of expert opinions are
critical in determining marketing communication budget allocation decisions. The type of
products that requires marketing also affects budget allocation. This is related to the type of
industry the product is classified under, the type of market, and customers' financial capacity.

How do these factors would relate to the relative allocations between advertising and sales
promotion?

For products that are at maturity stage or above sales, the promotion will take the majority of the
budget and for products that are at growth, stage advertisements take the larger share of the
budget (Aaker, 1991). This is because for products that are unknown to the market advertisement
play a great role however, as the products become more popular and sales increase advertisement
plays a lesser role, and marketing managers prefer the use of sales promotion.

One important factor that determines the relative allocations between advertising and sales
promotion is the relative market shares the companies have. Companies that have significant
shares of the market focus on building an image of market leaders and this is done by using long-
term advertising. Short-term activities like sales promotion don't provide an appealing image as
it diminishes their image and lowers their revenue. However, companies with small market
shares want to penetrate the market so, they focus on sales promotion and allocate a large share
of their marketing budget to it.

References

Aaker, D.A. (1991), Managing Brand Equity: Capitalizing on the value of a Brand Name, The
Free Press, New York, NY.
Doyle, P., & Saunders, J. (1990). Multiproduct advertis[1]ing budgeting. Marketing Science,
9(2), 97-113

Low, G. S., & Mohr, J. J. (1998). Brand Managers’ Perceptions of Marketing Communications
Budget Allocation Process. Marketing Science Institute, Cambridge, MA

Mihir Dash, Krishna K. Havaldar, Jacob Alexander, (2014) Establishing and Allocating the
Marketing Communications Budget in Indian Organizations

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