Which statement is most likely true about affordable method of setting an advertising budget?

What Is Advertising Budget?

An advertising budget is an estimate of a company's promotional expenditures over a certain time period. More importantly, it is the money a company is willing to set aside to accomplish its marketing objectives.

Key Takeaways

• An advertising budget is the amount of money set aside for purposes of marketing and advertisements.
• The cost of advertising dollars must be weighed against the potential recognized revenues that those dollars will generate.
• Demographic research and customer segmentation can create profiles to help optimize the returns to advertising spending.

Understanding Advertising Budget

An advertising budget is part of a company's overall sales or marketing budget that can be viewed as an investment in a company's growth. The best advertising budgets—and campaigns—focus on customers' needs and problems and on providing solutions to these issues, not company problems such as an overstock reduction.

When creating an advertising budget, a company must weigh the value of spending an advertising dollar against the value of that dollar as recognized revenue. Before deciding on a specific amount, companies should make certain determinations to ensure that the advertising budget is in line with their promotional and marketing goals:

• The target consumer — Knowing the consumer and having their demographic profile can help guide advertising spend.
• Best media type for the target consumer — Mobile or internet advertising, via social media, may be the answer, although traditional media, such as print, television, and radio may be best for a given product, market, or target consumer.
• Right approach for the target consumer — Depending on the product or service, consider if appealing to the consumer's emotions or intelligence is a suitable strategy.
• Expected profit from each dollar of advertising spending — This may be the most important question to answer, as well as the most difficult.

The best advertising budgets—and campaigns—focus on customers' needs and solving their problems, not company problems such as an overstock reduction.

Advertising Budget Levels

Companies can determine their advertising budget levels in several different ways, each of which has its positives and negatives:

1. Spend as much as possible — This strategy, which sets aside just enough money to fund operations, is popular with startups that see a positive return on investment on their advertising spend. The key is anticipating when the strategy will start showing diminishing returns and knowing when to switch strategies.
2. Allocate a percentage of sales — This is as simple as allocating a specific percentage based on the previous year's total gross sales or average sales. It is common for a business to spend 2% to 5% of annual revenues on advertising. This strategy is simple and safe but is based on past performance and may not be the most flexible choice for a changing marketplace. It also assumes that sales are directly linked to advertising.
3. Spend what the competition spends — This is as simple as adhering to the industry average for advertising costs. Of course, no market is exactly the same and such a strategy may not be sufficiently flexible.
4. Budget based on goals and tasks — This strategy, wherein you determine the objectives and the resources needed to achieve them, has pros and cons. On the upside, this can be the most targeted method of budgeting and the most effective. On the downside, it can be expensive and risky.

Take the quiz test your understanding of the key concepts covered in the chapter. Try testing yourself before you read the chapter to see where your strengths and weaknesses are, then test yourself again once you’ve read the chapter to see how well you’ve understood.

1. ‘Promotion’ and ‘Marketing Communications’ are interchangeable terms.

True

False

2. Advertising is generally a better promotional tool than sales promotion when it comes to closing a sale. True or false?

True

False

3. Radio is a mass medium. True or false?

True

False

4. PR normally stands for Press Relations. True or false?

True

False

5. The two principal participants in Schramm’s communications model are media owner and client. True or false?

True

False

6. AIDA is a sequential model showing the states of mind that a person may go through while deciding what to buy. What does AIDA stand for?

1. awareness, interest, design, action
2. attention, information, desire, achievement
3. awareness, interest, desire, attention
4. attention, interest, desire, action
5. awareness, information, desire, achievement

Answer:

d. attention, interest, desire, action

7. What is a push strategy?

1. a communications strategy aimed at distributors
2. a marketing strategy with a customer focus
3. a communications strategy aimed at consumers
4. a hard sell marketing strategy
5. a low-budget corporate strategy

Answer:

a. a communications strategy aimed at distributors

8. What is a pull strategy?

1. a communications strategy aimed at distributors
2. a marketing strategy with a customer focus
3. a communications strategy aimed at consumers
4. a hard sell marketing strategy
5. a low-budget corporate strategy

Answer:

c. a communications strategy aimed at consumers

9. Advertising, public relations and sales promotion are three of the four traditional techniques of the promotional mix. What is the fourth?

1. price
2. direct mail
3. word of mouth
4. questionnaires
5. personal selling

Answer:

e. personal selling

10. Which of the following is not a PR technique?

1. sponsorship
2. a product launch event
3. a press conference
4. a publicity stunt
5. an on-pack, free-prize draw

Answer:

e. an on-pack, free-prize draw

11. What is product placement?

1. in-store display
2. paying for your product to be used as a prop in entertainment or cultural media
3. the final pack shot in an advert
4. a sponsor’s message shown at the beginning and end of a TV or radio programme
5. the choice of distribution channel

Answer:

b. paying for your product to be used as a prop in entertainment or cultural media 

12. According to the UK advertising code administered by the Advertising Standards Authority [ASA], advertising should be:

1. legal, decent, honest and truthful
2. inoffensive, honest and clear
3. specific, measurable, achievable, relevant and timed
4. attention grabbing, interesting, desirous and actionable
5. legal, relevant, appropriate and not misleading

Answer:

a. legal, decent, honest and truthful 

13. The Quick Heat Company sells all sorts of standalone fires [e.g. paraffin heaters and electric fan heaters]. Most of their customers are businesses who have a short-term problem such as a heating breakdown. In order to increase sales, they have decided to try and persuade people who live in rented accommodation, and who may want to increase the warmth of their homes without investing in the property, to buy these fires. Who should be the primary target audience for their marketing communications campaign?

1. landlords of rented property
2. business owners
3. people who live in rented accommodation
4. heating engineers
5. homeowners

Answer:

c. people who live in rented accommodation

14. The Quick Heat Company sells all sorts of standalone fires [e.g. paraffin heaters and electric fan heaters]. Most of their customers are businesses who have a short-term problem such as a heating breakdown. In order to increase sales, they have decided to try and persuade people who live in rented accommodation, and who may want to increase the warmth of their homes without investing in the property, to buy these fires. Who is the primary target market for this campaign?

1. landlords of rented property
2. business owners
3. people who live in rented accommodation
4. heating engineers
5. homeowners

Answer:

c. people who live in rented accommodation

15. The Quick Heat Company have a new range of central heating boilers designed for domestic use. They know that most homeowners buy boilers that are recommended by their heating engineer. Who is their target market for boilers?

1. landlords of rented property
2. business owners
3. people who live in rented accommodation
4. heating engineers
5. homeowners

16. The Quick Heat Company have a new range of central heating boilers designed for domestic use. They know that most homeowners buy boilers that are recommended by their heating engineer. Who should be the primary target audience for their new campaign?

1. landlords of rented property
2. business owners
3. people who live in rented accommodation
4. heating engineers
5. homeowners

Answer:

d. heating engineers

17. Football Mania have booked an expensive ad slot during the FA Cup final. Unfortunately, there are technical problems and the ad is not shown. According to Schramm’s communications model, what is this an example of?

1. noise
2. distress
3. perception
4. breakdown
5. coding

18. The Oxo family starred in one of the most famous, and long-running, ad campaigns in the UK. It showed the family in typical situations, usually culminating in them sitting down to eat an Oxo-inspired meal. What kind of creative execution is this?

1. animation
2. demonstration
3. problem solution
4. slice of life
5. celebrity

19. What is the term for using specialist software to analyse large amounts of data [held in a database] to predict trends and likely customer behaviour?

1. data mining
2. sales forecasting
3. environmental scanning
4. supply and demand analysis
5. product interrogation

20. ABC company have forecast approximately £10 million sales for the coming year. They have decided to allocate £200,000 [2% of turnover] to marketing. Which budget setting method are they using?

1. arbitrary method
2. affordable method
3. competitive parity method
4. competitive percentage method
5. percentage of sales method

Answer:

e. percentage of sales method 

21. A ______ is a series of coordinated marketing activities designed to achieve specific objectives [e.g. to reposition a product or to educate people about its correct use].

22. Products are sold to target markets. Marketing Communications are addressed to target ______.

23. Sales promotions are ______-term, special offers and other added-value activities intended to induce buyers to buy, or try, a product.

24. PR may use the same ______ [e.g. television, radio or Internet] as advertising but in a very different way.

25. DAGMAR is a hierarchy of effects model comprising awareness, comprehension, ______ and action.

Which budgeting method involves setting a company's promotion budget to match the standard outlays for the industry?

Which of the following is most likely a key difference between advertising and sales promotion?

Which types of promotion tools requires the most interaction with a customer Digital advertising personal selling Sales Promotion public relations TV advertising?

Which of the following is the first step in developing an advertising program?