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IMC > Budgeting > Flashcards

Budgeting Flashcards

1
Q

Accountants and IRS view advertising as a _____, while marketing managers view it as a _____

A

Current business expense; long term investment

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2
Q

Two reasons advertising is a long term investment

A

Investment in future sales

Builds consumer preference and promotes goodwill

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3
Q

Increases in market shares closely related to increases in

A

Marketing budget

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4
Q

What is the saturation limit

A

The point where more advertising spending will not increase units sold/profits, and may even turn people away

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5
Q

These exist below which advertising expenditures has no effect on sales

A

Minimum levels

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6
Q

Why not just spend until it stops working?

A

Advertising isn’t the only marketing activity that affects sales
Lack of a clear cut way to determine the relationship between advertising and sales/profits

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7
Q

6 budgets for advertising types

A 
Fixed increment
Percent of sales
Share of market/share of voice
Objective/task
Quantitative modeling
Empirical
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8
Q

Budget: designate approximately the same amount each year (adjusted for inflation or other market factors)

A

Fixed increment

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9
Q

Fixed increment budget

A

Designate approximately the same amount each year (adjusted for inflation or other market factors)

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10
Q

Fixed increment pros (2)

A

Easy to use

Simplifies long term planning

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11
Q

Fixed increment cons (4)

A

Assumes last year was OK
ignores competition
Not good for new products
Little to do with objectives

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12
Q

Percent of sales budget

A

Allocate percentage of last years sales, anticipated sales for next year, or combination
(Past advertising dollars)/(past sales) = % of sales
% of sales x next years sales forecast = new advertising budget

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13
Q

Allocate percentage of last years sales, anticipated sales for next year, or combination
(Past advertising dollars)/(past sales) x next year’s sales forecast = new advertising budget

A

Percent of sales budget

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14
Q

3 ways to determine % in percent of sales method

A
  1. Industry average
  2. Company experience
  3. Forecast of future sales
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15
Q

Using the industry average in percent of sales method assumes that

A

Every company in the industry has similar objectives and faces the same challenges

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16
Q

Using company experience in percent of sales method assumes that

A

The market is static

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17
Q

Using forecast of future sales in percent of sales method assumes that

A

A certain number of dollars is needed to sell a certain number of units

18
Q

This method of determining % in percent of sales method assumes that every company in the industry has similar objectives and faces the same challenges

A

Industry average

19
Q

This method of determining % in percent of sales method assumes that the market is static

A

Company experience

20
Q

This method of determining % in percent of sales method assumes certain number of dollars is needed to sell a certain number of units

A

Forecast of future sales

21
Q

Pros of percent of sales budget (2)

A

Easy to use

Simplifies long term planning

22
Q

Cons of percent of sales budget (4)

A

Assumes static markets/promo costs
Ignores competition
What % to use?
Backwards!

23
Q

Why is the percent of sales method backwards

A

Marketing -> demand -> sales
Sales -> marketing?
Advertising increases when sales increase and declines when sales decline?
We may want to increase advertising when sales are declining

24
Q

Share of market/voice budget

A

Allocate based on desired share of market
If I want x% of market share then I should spend y*x% of industry advertising dollars
Share of media voice = share of consumer mind = market share

25
Q

Allocate based on desired share of market
If I want x% of market share then I should spend y*x% of industry advertising dollars
Share of media voice = share of consumer mind = market share

A

Share of market/voice budget

26
Q

Share of market/voice is commonly used for

A

New product introductions

27
Q

Pros of share of market/voice budget (2)

A

Considers competition

Related to marketing objectives

28
Q

Cons of share of market/share of voice (2)

A

What is proper ratio (y)?

Difficult for long term planning (industry keeps changing)

29
Q

What is the most common type of budget

A

Objective/task budget

30
Q

Objective/task budget

A

Define objectives, determine strategy, estimate cost to execute strategy
Used by the majority of major national advertisers in the us
Forces companies to think in terms of accomplishing goals

31
Q

Define objectives, determine strategy, estimate cost to execute strategy

A

Objective/task budget

32
Q

Three steps of objective/task budget

A
  1. Define objectives
  2. Determine strategy
  3. Estimate cost
33
Q

Pros of objective/task budget (2)

A

Explicitly considers promo goals/objectives

Adaptable to changing market conditions

34
Q

Cons of objective/task budget (3)

A

Time consuming
Difficult
Relies heavily on judgements/assumptions

35
Q

Computer-based programs that rely on data, history, and assumptions

A

Quantitative models budget

36
Q

Quantitative modeling budget

A

Computer-based programs that rely on data, history, and assumptions

37
Q

Pros of quantitative modeling (4)

A

Rigorous
Systematic
Quantitative
Objective

38
Q

Cons of quantitative modeling (3)

A

Time consuming (have to have the data, define the variables)
Need accurate historical data
Confounding factors

39
Q

Determine allocation by running experimental tests in different markets with different budgets

A

Empirical budgeting

40
Q

Empirical budgeting

A

Determine allocation by running experimental tests in different markets with different budgets

41
Q

Pros of empirical budgeting (2)

A

Based on actual marketing experience

Persuasive with top management

42
Q

Cons of empirical budgeting (4)

A

Time consuming
Confounding factors
Willing to sacrifice markets?
Lag effect(s)

IMC (15 decks)

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