Budget Flashcards
What is marginal analysis?
– this is the examination of the additional benefits of a campaign compared to its additional costs. Organisations use marginal analysis to help maximise profits.
What does an affordable budget mean?
– this is as it sounds: spending what is affordable. This is not based on any research into the cost of a campaign but is set on the basis that promotion is viewed as essential and designed around the amount felt necessary to maintain a certain brand presence. The budget is allocated from company surpluses
What is an objective and task budget?
– this is where an organisation allocates its
budget based on the objectives of the campaign. Allocation is based on the tasks required and the costs associated with those tasks. This method is quantified and can be monitored quite simply.
What is the % of the sales budget method?
– the percentage-of-sales method allocates the marcoms budget based on forecast sales or current sales. Allocation is based on the revenue so when revenue goes up, the budget goes up and vice versa.
What is the competitive parity budget method?
– this is when an organisation tries to match its budget to competitors. This may be to try to emulate the success of a competitor’s campaign. However, this can have its problems; for example, a competitor may have a lower cost base allowing more funds to be available for marketing activity
What is the investment budget model?
– this is sometimes used by organisations where the promotional budget is set according to the amount felt necessary to maintain a certain brand value
There are six roles that people might play in the buying decision… what are they?
- Initiator – the person who first suggests the idea of buying a product or service.
- Influencer – a person whose views or advice carry some weight in making the final decision. This could be a family
member, a friend or a colleague. - Decision-maker – the person who decides on the major components of any buying decision: whether to buy, what
to buy, how to buy, or where to buy. - Purchaser – the person who makes the purchase.
- User – the person who actually uses the product or service. Depending on the circumstances of the purchase, this may or may not be the Initiator.
- Gate-keeper – these are people who control access to key members of the DMU
What is Loss aversion?
the principle here is that people will work harder to avoid losing something than they will to get it in the first place. Loss aversion is the tendency to avoid losses over achieving equivalent gains. Broadly speaking, people feel pain from losses much more acutely than they feel pleasure from the gains of the same size.
What is a top down method of budgeting?
a budgeting method where senior management prepares a high-level budget for the company. The company’s senior management prepares the budget based on its objectives and then passes it on to department managers for implementation.
What is a bottom-up method of budgeting?
the flow of information from the ‘floor level’ employees in each department up towards senior management. Departments will decide their own forecasted expenses, and then request approval from higher ups
What are the 3 things you can do to affect SVA? (Shareholder value added)
- increase revenue
- decrease costs
- decrease the amount of capital tied up in the business.
What is SVA (Shareholder value added)?
Shareholder value added is the difference between the wealth held by shareholders at the end of a given financial period and the wealth they held at the beginning of the period.
What does break-even mean?
the point at which cost and income are equal and there is neither profit nor loss.
Define net profit
the actual profit after working expenses not included in the calculation of gross profit have been paid.
Define return on sales
a financial ratio that shows how much of your overall revenue is actually profit and how much is being used to pay down operating costs.
