Setting the Advertising Budget
After determining its advertising objectives,the company next sets its advertising budget for each product. Four commonly used methods for setting promotion budgets are discussed in Chapter 14. Here we discuss some specific factors that should be considered when setting the advertising budget.
A brand's advertising budget often depends on its stage in the product life cycle. For example,new products typically need relatively large advertising budgets to build awareness and to gain consumer trial. In contrast,mature brands usually require lower budgets as a ratio to sales. Market share also impacts the amount of advertising needed: Because building the market or taking market share from competitors requires larger advertising spending than does simply maintaining current share,low-share brands usually need more advertising spending as a percentage of sales.
Also, brands in a market with many competitors and hihg advertising clutter must be advertised more heavily to be noticed above the noise in the marketplace. Undifferentiated brands-those that closely resemble other brands in their product class (soft drinks, laundry detergents)-may require heavy advertising to set them apart. When the product differs greatly from those of competitors,advertising can be used to point out the differences to consumers.
No matter what method is used, setting the advertising budget is no easy task. How does a company know if it is spending the right amount? Some critics charge that large consumer packaged-goods firms tend to spend too much on advertising and that business-to-business marketers generally underspend on advertising. They claim that, on the one hand, the large consumer companies use lots of image advertising without really knowing its effects. They overspend as a form of "insurance" against not spending enough. On the other hand, business advertisers tend to rely too heavily on their sales forces to bring in orders. They underestimate the power of company and product image in preselling industrial customers. Thus, thdy do not spend enough on advertising to build customer awareness and knowledge.