Creating a Total Marketing Communications Budget

[stcarm...@hotmail.com]

In Chapter 17, Kotler (2011) discusses the different options for creating a total marketing communications budget. One of the most common methods used by today’s businesses is the “percentage-of-sales method” which Kotler (2011) describes on page 489. Supports of this method point to how its ability to flocculate with the company’s financial performance pleases the financial managers, marketing managers who enjoy increased budgets during successful years, and its ability to encourage stability when competing firms spend approximately the same percentage of their sales on communication. Though this is a common practice through out the business industry today, both Kotler and industry expert George Day both argues against this method as being both inefficient and ineffective. A much more effective method is the “objective-and-task method” that Kotler (2011) describes on pages 489-490. This method calls upon marketers to define specific objectives, determine tasks that must be performed to achieve these objectives, and also estimate the costs of executing them. My question is this: With so much evidence suggesting that the “percentage” method is both ineffective and inefficient, why do so many businesses still choose to use it when there are clearly much better alternative methods available? Is it because of unwillingness to change? Is it due to its acceptance as a humanitarian way to appease the majority? Or is it that this is an acceptable short-cut that promotes laziness instead of requiring managers to put forth the effort to research and insure that every dollar is being used as effectively as possible given the current industry knowledge?

[lindsey...@yahoo.com]

This is posted by Lyn McKee (my login is still pending so am posting under Lindsey)

 

I believe that businesses still use the "percentage-of-sales method" in creating marketing communications budget for that exact reason because it is easier and that's is the way they have always done it.  Humans are creatures of habit and they either don't know how to use the "objective-and-task method" or they don't want to put that much effort into it.  By using the percentage method according to Kotler & Keller (2011, p. 499) "communication expenditures will vary with what the company can afford." They also talk about "encouraging stability when competing firms spend approximately the same percentage on their sales communications."  This is a much simpler way to come up with a communications budget, the problem is the accuracy will not be there. 

 

As for the "objective-and-task method" this makes marketing managers much more accountable in developing their budget.  As Kotler & Keller (2011, p. 489) discusses, to develop such a budget a manager must look at several components.  These include:  "establish the market share goal, determine the percentage of the market that should be reached by advertising, determine the percentage of aware prospects that should be persuaded to try the brand, determine the number of advertising impressions per 1 percent trial rate, and determine the necessary advertising budget on the basis of the average cost of buying a gross rating point."  As you can see, the second method is much more detailed and would require more extensive research analysis and data before being able to establish a proposed budget.

[Jennifer Parson]

I believe the fear of change plays a major role in why organizations continue to use the percentage-of-sales method even though it has recently proven to be unreliable for planning. According to Kotler (2011) this method encourages stability when competing films spend approximately the same the same percentage of their sales on communications. Adjusting to other methods such as the objective-and- task method can be difficult especially in budgeting where most decisions are made in the midst of uncertainties. I agree that an objective-and-task method is more effective, but the percentage-of-sales method is based on sales therefore ridding some ambiguity.

[Jennifer Parson]