Advertising budget refers to the amount that an advertiser sets aside for different advertising activities. It is a detailed plan of the different amounts that will be spent for different advertising ac- tivities for a particular period of time.
In large organizations ad budget is prepared by ad manager in consultation with finance manager or marketing manager. In some organizations marketing managers prepare ad budget in co-ordination with their senior authority. Many times, large companies take help of ad agency to prepare their ad budget. Ad agency and head of advertising department of company discuss and prepare ad budget. In small organization the owner himself or senior officer discuss and prepare their ad budget.
Factors determining advertising budgets are:
1. Frequency of Advertising
The ad budget depends upon frequency of advertising. Frequency of ad refers to number of times advertisement has been shown. If frequency of ad is more, the budget has to be more and vice-versa. Eg. Advertisement of products such as Dettol Soap, Lizol, Airtel etc. is frequently shown on TV media so their ad budget is obviously more.
The ad budget of advertiser depends upon amount spent by competitor on his ad campaign. For instance, we see in case of telecommunication companies such as Vodafone, Airtel and others, when advertisement of one particular telecommunication company increases, other telecommunication company also spend more on their ad campaign.
3. Type of Media
Various media includes print media (Newspaper, Magazine etc.., broadcasting media (TV, Radio etc.., Outdoor media (Hoardings, Transit etc.., Digital Media and so on. Type of media affects ad budget. Eg. TV media is costlier as compared to newspaper and magazine media. Also there are some sites on internet where advertiser can create his own website for promotion of his products at free of cost or some nominal price is required to pay. Some advertisers select multiple media for advertisement purpose then ad budget is increased.
4. Type of Audience
If type of audience belongs to upper income group, then advertiser needs to spend on VFX, locations, models etc. In that case, ad budget increases. So type of audience influences allocation of ad budget by the advertiser. Eg. In the ad of luxurious cars targeting upper income group, lot of money is spent on VFX, model, location etc.
5. Objective of Ad Campaign
The objectives of ad campaign can be to create awareness, develop brand image, reminder about product, develop positive attitude and so on. For instance, if the objective is to develop brand image, then advertiser needs to increase frequency of ad in order to fix image of product in the mind of target audience, in that case ad budget has to be more.
6. Stage of Product Life Cycle
Generally, product passes through various stages of product life cycle which includes introduction stage, growth stage, maturity stage and finally decline stage. At introduction and growth stage of PLC, ad budget is more to create awareness among prospects and then create brand image in the mind of target audience. At decline stage budget can be reduced but even if advertiser spends more on ad campaign, it is not going to increase sales of the firm.
7. Management Philosophy
Management philosophy of any firm influences ad budget. Some managements think that advertisement and profit have positive correlation, in that case they spend more on advertisement. Today also there are managers who think advertisement does not contribute in profits of the firm, so they spend less on advertisements. They adopt some other promotion strategies.
8. Past Ad Budgets
While deciding amount of ad budget, an advertiser can take past ad budget as base. Generally, advertisers spend more as compared to previous year’s ad budget. So past ad budgets are also important factor to be considered while deciding current ad budget.
9. Availability of Disposable Funds
A disposable fund refers to those funds which are available for spending after paying off all the expenses. If disposable funds are more, the advertiser will allocate more funds for ad budget and vice-versa.
10. Area Coverage
Area coverage by advertisement is also considered while deciding ad budget. If larger area such as national or international level advertisement is to be covered, then ad budget has to be more. For local area, ad budget may be low.