MKTG 477 1st Edition Lecture 19 Outline of Last Lecture I. In class activity Outline of Current Lecture I. Percentage of SalesII. All you can affordIII. Arbitrary allocationIV. Competitive parity V. Objective and TaskCurrent LectureMarch 6, 2015 – BudgetingWhat do you need to know about promotional budgeting?1. Budget items – where the money goes2. Budgeting methods/techniques – how the money is allocated 3. Budget considerations and effects – factors that may influence the budget decisionBudget items- Creative/production- Media- Research Budgeting methods/techniques (commonly used)- Percent of sales (most companies use this, even though it is not the smartest)o “Promotional budget is set as a percentage of current or anticipated sales”o Typical percent of sales = 2 to 5%These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- All you can afford (Affordability)o $ sales revenue – expenses = advertising/promotion- Arbitrary allocationo Not systematico Hit or misso More at the local level vs. nationalo Can be based upon mood of manager at time- Competitive parity o Budget with competitors in mind o Keep the same proportion of dollars spent as competitorsCompany Sales Ad budget PercentMcDonalds $34.17 billion $963 million 2.8Subway $11.40 billion $475 million 4.2Wendy’s $8.51 billion $273 million 3.2Burger King $8.40 billion $300 million 3.6Pizza Hut $5.41 billion $220 million 4.1- Objective and Tasko Set the promotional objective o Determine tasks to meet that objective o Estimate the costs associated with those tasks o Set the budget accordinglyShould the money spent on promotion be considered an “investment” or an “expense”? (Or, does it matter?)- Expense – a cost to doing business- Investment – attempting to achieve an objectiveAs expenses:- Percentage of saleso Doesn’t make sense to spend less on advertising when sales are down because you needto spend more to increase awareness leading to sales- Arbitrary allocation- All you can affordo Same logic as percentage of sales- Competitive parity (sometimes)o Thinking you have to increase (or decrease) budget because competitors are does not make sense when your sales are different than theirsAs investments:- Competitive parity (sometimes)o They hope to accomplish something, see it as an opportunity to become more competitive- Objective and tasko We are hoping that by X time, spending X amount of money will help us get
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