Explain the various Factors Affecting to advertising expenditure

Factors Affecting Advertising Budget

The factors affecting advertising budget are

Market Size and Potential
The size of the market affects the advertising expenditure. Greater the market share, greater is the expenditure and vice-versa. The ambitious is the plan for promotion more is the advertising expenditure. If the market and its potential is small then greater advertising expenditure will be a waste. If the market is concentrated in a geographical area lesser expenditure is required. If the market is dispersed then it requires more expenditure. By potential we also mean that there is greater potential of advertisement services in urban rather than rural areas. There is more potential for coffee in the south than in the north. There is more demand of woollens in the north of India than in the south and so on. We there fore see that the potential and size of the market affects the advertising expenditure.

Market Share Goals
The studies taken from Harvard Business Review by John Jones compared the advertising expenses with the share of advertising voice (total value of the main media exposure in product category). He classified the brands under 3 categories.

1. Profit-making brands as under spenders.
2. Investment brands whose Share Of Voice (SOV) is above their share of market.
3. Brands with small-market share, which do not make much profit or have a proportion of smaller share of voice. New brands have to be supported and require a great amount of advertising expenditure.

Older and more matured brands are milked when they reach the maturity stage therefore advertising support is reduced. Thirdly there is an advertising economy of scale where advertising is more effective for well-established brands and the expenditure is lower. By economies of scale we mean that the bigger companies who advertise more get better rates from the media than the smaller firms who advertise less. They get the advantage of advertising several products jointly. They also enjoy a more favourable time and space position, cooperation of middle men and favourable publicity. All these advantages are known as economies of scale. Another suggestion is given by James Shroer in a situation where the firm wants to increase its market share. He suggests that the firm or the marketeer should:

1. Segment the market on the basis of weak competition and spend less in those markets rather than indulging in a national advertising effort.
2. Segment the market where there is competition and increase the expenditure to fight the competition.
3. It should not save advertising expenditure to get short-term gains or profits.
4. In short, it should concentrate on their niche market and niche strategies rather than long-term wars.

Organizational Characteristics
There are a number of factors regarding the organizational characteristics that are to be considered.

• These factors vary from one organization to another as their characteristics differ and influence the advertising expenditure.
• Structure of the organisationi.e., centralized, decentralized, balanced, formalization and complexity of the organization.
• Power and politics in the organization with vested interests.
• The use of expert opinion e.g., consultants.
• Characteristics of the decision maker (Preference, experience, expertise etc).
• Approval and negotiation channels
• Pressure on senior managers to arrive at the optional budget.

Conclusion
Money is the backbone of all organizations and it should be spent wisely. Advertsing expenditure is a very important element of budgeting and sales promotion. It is to be determined how much money is to be allocated and for what purpose. The media is then chosen and implementation is to be done keeping all the factors in mind.

Whether you're selling a product or service to a select group of consumers, creating a marketing plan helps outline how you will inform, persuade or remind the customers about what your business offers. An essential part of this plan includes coming up with a budget for advertising expenditures. While each company's advertising budget may differ, there are several factors that can affect even the smallest advertising budget.

Projected Annual Gross Sales

When entrepreneurs prepare to create advertising budgets for their businesses, it's important to take projected annual gross sales into account. This method helps protect entrepreneurs from spending too much or too little on advertising. "Entrepreneur," an online resource and magazine for business owners, suggests calculating your minimum and maximum advertising budget figures by calculating 10 percent and 12 percent of your projected annual gross sales. Then, multiply each figure by the markup you make on your average sales transaction. This figure can vary year to year depending on both your company's performance and your product markups.

Marketing Objectives

Marketing objectives vary across organizations and can greatly affect what appears on a company's advertising budget. Determine which marketing objective will help you reach your annual business goals. Marketing objectives might include obtaining 5 percent more repeat customers, experiencing growth each month or increasing annual sales by 10 percent. The objectives you come up with help you define marketing strategies and tactics, which ultimately give insight into how and where you advertise, both of which are things that can affect your budget.

Target Market

While one business is targeting customers whose annual household income is at least $500,000, another business may target recent college graduates who make at least $33,000 a year. The target market you're trying to reach has an impact on your advertising budget. Once you define your target market, you gain insight on how to reach them learning information such as what they read, where they shop, who they get advice from, their needs and wants and what motivates them to buy.

Types of Media

A print advertisement in a local publication may cost less than running an online advertisement with a popular, credible website. The types of media you select to promote your product, whether it's radio, print, web, email, billboards or direct marketing, can impact your advertising budget.

Time of Year

Advertising pricing may change during different times of the year, such as a new season or during popular holidays. While some advertisers may offer discounting, others will increase their prices if they feel their readership or viewership may peak during specific times or events. If you're trying to place an advertisement in a magazine's most popular issue of the year or a television commercial during a highly televised event, such as the Super Bowl, you can expect a change in the amount you spend to promote your product or service.

Product Launch vs. Existing Product

If you're introducing a new product to the market, consider this as you create your advertising budget, as it may affect how much you spend. When products are launched, business owners often go into overdrive coming up with various ways to advertise and promote their new product or service to potential clients. This may cause an advertising budget to be higher than it would be for a product that customers are already aware of and have purchased in the past.

What are the factors affecting advertisement?

What is meant advertising expenditure?