Total Promotion Budget | Methods of determining budget for promotional expenditure

Methods of determining the total promotion budget

Firms expend considerable amount on promotional activities. Four methods are employed in determining the budget for promotional expenditure. They are detailed as follows.

Total Promotion Budget - Methods of determining budget for promotional expenditure

Image: Total Promotion Budget – Methods of determining budget for promotional expenditure

1. Affordable method

Many companies employ the affordable method for determining the promotion budget. The promotion budget is set in a manner which the company can afford. This method is a subjective assessment, as it pays little attention to the long-term promotional needs of a service. This method does not consider the role of promotion in sales volume. Employment of affordable method very often results in an uncertain annual budget, making the long-range planning difficult.

2. Percentage of sales method

Under this method, promotion expenditure is determined as a percentage of sales. The advantages of percentage of sales method are —

  1. First, expenditure on advertising is closely related to the sales. So, the company can easily afford to spend a specified percentage of sale on promotion.
  2. Second, this method facilitates an analysis of the relationship among promotion cost and selling price per unit. Third, this method ensures stability when competitors are also spending the same percentage of sales on promotion.

3. Competitive-parity method

Under this method, advertising expenditure of the firm is equal to the amount spent by competitors. This method follows the policy of the competitors in respect of promotion budget. It is based on the assumption that competitor’s expenditure represents the prudence of the industry.

Since the promotion budget of one firm is in parity with the competitor, promotion war is avoided. However, this method has certain limitations. There is no assurance that competitors’ promotion budget represents collective wisdom of the industry. Companies vary in reputation, resources, objectives and opportunities. So, the promotion budget appropriate to one firm may not be appropriate to the other.

4. Objective and task method

Under this method, marketers determine promotion budget by defining specific objectives, determining tasks to be performed to accomplish the objectives and estimating the cost of performing these tasks. This method is rational as it sets the promotion budget at a cost which is required to realize the objective of the company.

Leave a Reply




Recent Posts


Related pages


bombay stock exchmarketing skimming strategyacid test liquidity ratioadvantages and disadvantages of direct investmentdefinition of consumer by philip kotleradvantages and disadvantages of radio advertisingadvantages and disadvantages of e marketingassociation meaning in urducontract of bailment and pledgedeductive vs inductive methoddirect materials variancebudget period definitionlimitation of activity based costinglabor variancesjoint stock company common sealdepository services pptdemotion in hrmbenefits of penetration pricingadvantage of convenience samplingmerit rating pptworld bank organisational structuremeaning of zero based budgetingexamples of amalgamation of companiesmeaning of sebiwhat is deductive analysisadvantage of irradvantages of small scale farmingfactors affecting centralization and decentralizationprobability sampling method definitionlimitations of ratio analysis in accountingnegotiable instrument definitionadvantages of leasing equipmentmisfeasance examplewhat is sdr in bankingcaveat emptor buyer bewarevertical horizontal and conglomerate mergersthe maker of a promissory notewhat huf meanstransferability of shares in private companyexpress bailmentcrisil managementcapital budgeting process definitionmarginal costing advantagesbank nationalisationadvantages of the mixed economyeffective delegationdebtors turnover formulaadvantages and disadvantages of staffingadvantage and disadvantage of organizational structurerequirements for a valid contractstages in selling processdepartmental organisation meaningadvantages and disadvantages of probability and nonprobability samplingdifferentiate between wholesaler and retailer75000 inr to usdpricing decisions in international marketingwhat is cash operating cyclewhat is labour turn oversebi objectiveswhat is quota samplinginductive and deductive approachskim pricing exampleslabour turnover definitionfactoring advantagesmeaning of exception in hindibudgeting wikipediahow to calculate paybackdepartmentation by customeraccounts payable turnover ratiodepositories definitionmultidomestic business strategyresponsibilities of a banker