Communications

Meaning of Communication

The term communication has been derived from the Latin word "Communis" which mean common. The basic purpose of communication is to create
mutual understanding between two or more individuals/groups. According to Louis Allen "communication is the sum total of all the things one person does
when he wants to create understanding in the mind of another. It is a bridge of meaning. It involves a systematic and continuous process of telling, listening
and understanding".

The Process of Communication

The communication process is the inter relationship between several interdependent components. It consists of a whole series of related actions and
reactions which together result in the sharing of meaning. In order to understand how communication works, it is necessary to describe each of these
components. Different parts of communication process are described below:

1. Sender:
The process of communication begins when the sender feels the need for it and the idea generates in his mind. Sender or transmitter is the source
of the message and wants to transmit it for some purpose. The sender may be a speaker, a writer or an actor. He must have a clear picture in his mind
of what he wants to communicate. The sender must identify, analyze and sequentially arrange the ideas before transmitting them to the receiver.
Otherwise the receiver may feel that the sender is mentally toying with half-baked ideas. The ideas should be concrete. The sender should encode the
ideas in the form of a message.
2. Message:
A message means what is being communicated. It may be verbal (spoken or written) or non-verbal (e.g., appearance, body language, silence, etc.).
Message is the heart of communication. How well you design the message depends on how well you know your audience.
3. Encoding:
The sender puts his ideas or facts into words, symbols, pictures or gestures which the other person can understand. This part of the
communication process is called encoding. It also involves the choice of appropriate media so that the idea is translated into a message that can be
transmitted to others. Words and symbols should be selected carefully keeping in mind the purpose of communication and the needs of the receiver.
Words and symbols should be suitable for transmission, reception and understanding. Thus, the contents and language of communication constitute
the message.
4. Channel and Medium:
Channel of connects the sender with the receiver. For instance, time table of a college is the channel which ensures that the teacher and
the students go to the same classroom at the same time. No communication can take place if the teacher goes to room no. 21 but the students to room
 no. 12. Medium is different from channel. For example, a letter is the medium whereas mail service is a channel. Speech is the medium but loudspeaker
is the channel. In oral and visual communication the message may be transmitted instantaneously. But in written message there is a time gap between
despatch and receipt of the message.
5. Receiver:
The person or group to whom the message is directed is known as receiver. The receiver represents the destination for the message. He may be a
listener, a reader or a viewer. Like the sender he has an image of himself and of the sender.
6. Decoding:
The receiver translates the words and symbols used in the message into idea and interprets it to obtain its meaning. This is called decoding and it
is the opposite of encoding. If the receive is familiar with the codes used and his perception is good, he will derive more or less the same meaning as
meant by the sender. The message should be accurately reproduced in the receiver's mind. You knowledge, experience and viewpoints act as a filter to
help you decode (interpret) the message.
7. Feedback:
After deriving meaning the receiver reacts or responds to the message. He sends back his response to the sender. This return flow of
communication is called feedback. The process of communication is incomplete until the sender receives the feedback.
Feedback is the key element in communication as it is the only way of judging the effectiveness of the message. Feedback indicates the
knowledge about the outcome of communication. It begins when the receiver responds to the message and ends when the response reaches the
sender. Feedback enables the sender to know whether his message has been properly understood and whether it had the desired effect on the mind
and behaviour of the receiver. Systematic use of feedback helps to improve future messages.

Meaning of Advertising
The term "advertising" has been derived from the Latin word 'advertere' which means to turn the mind to. Advertising seeks to turn the attention of
people toward a product, service, idea or organization. Advertising involves transmission of oral, written, audio, visual and audio-visual messages to a large
number of people. The message called 'advertisement' is non-personal and paid for by the sponsor.

Definitions of advertising

According to American Marketing Association "Advertising is any paid form of non-personal presentation and promotion of ideas, goods and services by an
identified sponsor."

According to Philip Kotler "Advertising consists of non-personal forms of communication conducted through paid media under clear sponsorship."
Nature of Advertising

The main characteristics of advertising are as follows:

1. Non-personal:
Advertising does not involve face-to-face interaction between the buyer and the seller or his representative. It is an impersonal means of
marketing communication. On the other hand, personal selling involves face-to face interaction with the prospective buyer.
2. Paid Form:
An advertisement is openly paid for by its advertiser. The advertiser purchases time or space to tell his story. Money is paid for per column
centimetre in print media and per second in radio and TV. There are standard tariff rates for different types of advertising media.
3. Identified Sponsor:
The sponsor is the organization or the individual which paying for the advertisement. The source of advertising message can be easily
identified. Even if the name of the advertiser is not mentioned, it is not difficult to identify the sponsor of the advertisement. In advertising, the receiver
of the message is able to identify both the source and purpose.
4. Mass Appeal:
Advertising is addressed to mass audience and not to any specific person. It is not a one-to-one communication but a message that is directed
simultaneously at a large audience.
5. Promotion:
The basic purpose of advertising is to persuade people to buy products or services or to accept ideas which are being advertised. The message
is communicated to the target audience to influence behaviour or to make people favourably inclined towards whatever is advertised.
6. Products, Services and Ideas:
Advertising is done not only for tangible products like a TV or refrigerator but also for services (e.g., insurance policy, share issue, airline
travel) and ideas (e.g., family planning, no smoking, pollution control).
7. Multiple Media:
Advertising messages can be communicated through several types of media such as newspapers, radio, TV, films, direct mail, bill boards,
leaflets and so on.
8. Creativity:
Advertising requires use of imagination and creative ideas. Without it, the target audience may not act upon the message. The most creative
advertisement is the one that ultimately succeeds in its aim. Therefore, an important feature of advertising is "creativity that sells."
9. Long-term Investment:
Advertising is neither a wasteful expenditure nor an investment that yields returns in the short-term. It is an investment in building goodwill
and brand image over a period of time.
10. No Direct Relation with Sales:
There exists no direct correlation between money spent on advertising and increase in sales volume. It is not only the amount of money spent
but how well it is spent that makes an impact on sales turnover.
11. Art and Science:
Advertising is both a science and an art. The science of advertising is analytical and it comes from strategic thinking, i.e., setting objectives,
deciding the strategy and choosing creative styles. The art of advertising comes from writing, designing and producing exciting messages. Advertising is
a disciplined art.
12. Controlled:
The content, time and direction of an advertisement are controlled by the advertiser. The advertiser says what he wants to say, no more or no less.
By carefully selecting the medium that delivers the message, may he direct it to the people whom he wants to receive it.

Importance of Advertising

I. Benefits to Businessmen:
Advertising is helpful to manufacturers and traders in the following ways:
i. Meeting Competition :
Advertising helps a business firm in facing competition in the market. It plays a vital role in establishing and maintaining brand names. By
creating brand loyalty, advertising helps a business enterprise to maintain sales and market share. It supplements personal selling and sales promotion.
It creates preference for a particular product, opens doors for salesmen and reinforces point of purchase display, thereby reducing the costs of creating
and maintaining demand.
ii. Steady Demand:
Advertising creates regular demand by smoothening out seasonal and cyclical fluctuations. For instance, advertising is used to emphasize hot
and cold uses of coffee to maintain regular sales both during summer and winter. By suggesting new and more frequent use of product, advertising
helps to maintain demand throughout the year. Steady demand enables regular production.
iii. Higher Sales Volume:
Advertising helps to increase demand, expand markets and enhance sales of existing products. Through repeated advertising, a producer can
create new customers and enter new markets. It creates new wants and increases sales. Advertising is an essential technique of mass selling.
Advertising prepares the ground for the salesperson by making the consumer aware of the product and its benefits so as to speed up the selling
process.
iv. Introduction of New Product:
Advertising is helpful in introducing new products by creating awareness and gaining their acceptance. By informing consumers about the new
product, advertising stimulates their interest and persuades them to buy it. Effective advertising helps in overcoming consumers' resistance to new
products. It encourages new product development by providing an economical way to inform potential buyers of new products.
iv. Economies of Scale:
Advertising facilitates mass distribution of goods. It reduces dependence on middlemen as dealers are more willing to stock and sell well
advertised goods. Direct distribution and rapid sales turnover help to reduce costs of distribution. Mass distribution and steady demand lead to large-
scale and regular production. As a result, several economies of scale become available and cost of production per unit is reduced. Investment in
inventories can be reduced.
v. Goodwill:
Advertising helps in creating a good image of the firm and reputation for its products. A favourable image increases the capacity of the firm to
survive competition and depression. It is through effective advertising that Tatas, Birlas, etc. have become household names. It has rightly been
observed that "doing business without advertising is like winking at a girl in the dark. You know what you are doing but no one else knows." By building
goodwill advertising enables business firms to obtain repeat orders.
vi. Employee Morale:
By building reputation of the firm, advertising provides a sense of security to employees and improves their morale. Salesmen feel happy as their
task becomes easter when the product and its producer are known to customers. In a well reputed firm, executives have a feeling of pride and job
satisfaction which are necessary for better performance.

2. To Customers:

Advertising is beneficial to consumers due to the following reasons:

i. Convenience in Shopping:
Advertising makes purchasing easy by reducing the time and effort involved in shopping People become aware of the source and availability
of different products and need not search them out. They can make better choice among different varieties, with the help of information provided by
advertising
ii. Education of Consumers:
Advertising provides education and knowledge to consumers about new products and their diverse uses. Consumers get the benefit of better
advice in safe and proper use of products and develop new ways of life. In this way advertising makes for better living.
iii. Lower Prices:
Effective advertising reduces costs due to large scale production and elimination of wholesalers. As a result customers get goods at lower prices.
Many expensive products of yesteryears have come within the reach of the common man due to continuous advertising and consequent reduction in
prices. Advertising helps to eliminate unnecessary middlemen, thereby making products cheaper for the consumers.
iv. Better Quality:
Advertising is generally done through brand names. Producers try to create special features in their products to successfully communicate product
differentiation. Need to find arguments in advertising and desire to live upto the image, leads them to improve quality and product design.
Consequently, consumers get better quality and variety of goods. "Large scale advertising of a product can be really effective if there is a rigid quality
control which enables the customer to buy products of the same standards of performance anywhere.
v. Consumers' Surplus:
Advertising brings the customer close to the producer so that each can fully appreciate the needs of the other. Such understanding helps in
better matching of products and services with human needs. Through advertising consumers better appreciate the utility of products and derive higher
satisfaction from their consumption. This satisfaction and pleasure derived by them from the products is called consumers' surplus .

3. To Society:
Advertising serves the society in the following ways
i. Employment Generation:
Advertising provides direct employment to a large number of people engaged in designing, writing and issuing advertisements. Indirectly,
advertising increases employment opportunities by increasing the volume of production and distribution.
ii. Standard of Living:
Advertising improves the standard of living of the people by promoting variety and quality in consumption. It educates people about new uses of
products and provides information for developing better ways of life. It is essentially form of education and the progress of civilisation depends on
education
iii. Sustains the Media:
Advertising provides an important source of revenue to newspapers, magazines, radio and television. It has been estimated that advertising
provides more than 50 per cent of the cost of newspapers and magazines. As a result public gets news at lower rates and the circulation of newspapers
and magazines increases. Press is the guardian of public opinion and by helping it to remain independent, advertising promotes liberty and democracy
in the country. By subsidising the press, advertising serves as bright symbol of freedom of choice.
iv. Stimulates Research and Development:
Advertising can be successful only when it is backed by new and better products. To derive maximum benefits from advertising in the
competitive market, every producer tries to differentiate his products from the competitive products. Big business firms have research and
 development departments to develop new products and new uses. Research and development becomes necessary also to maximise efficiency and to
minimise costs of production. In the absence of advertising and mass distribution, many products would remain confined to the laboratory. By
promoting research and development. advertising helps in the process of rapid industrialisation.
v. Incentive to Progress:
Advertising is a great motivating force. In the words of Sir Winston Churchill, "Advertising nourishes the consuming power of man. It creates a
desire for better standard of living. It spurs individual exertion and greater production." People are induced to work hard and earn more to buy new
products brought to their knowledge through advertising
vi. Art and Culture:
Advertising promotes the creative energies of people required in designing and developing advertisements. Commercial art is largely the
creation of advertising Advertising provides a glimpse of national life, a running commentary on the way people live and work. Advertising also provides
entertainment to the public. Many sponsored programmes on radio and television have become very popular due to their entertainment and aesthetic
value.

Types of Advertising
Various types of advertising may be classified as follows:

I. On the basis of target group

1. Consumer Advertising:
Consumer advertising is directed towards both customers and consumers who buy for their own personal and household use. Such
advertising is also known as end product advertising. Customers are the people who buy the product and consumers are the people who finally use the
product. Consumer advertising aims at promoting sales by appealing directly to customers and consumers. Most of the advertisements are of this type
because both products and consumers are very large in numbers. Advertisements for cosmetics, ready-made garments, detergents, washing machines,
TV sets are a few examples of consumer advertising.
2. Industrial Advertising:
Industrial advertising is that advertising which manufacturers or distributors of industrial goods make to stimulate demand among the
industrial buyers of such goods. Industrial advertising is directed at business firms and other organizations which purchase and use industrial products
such as raw materials, plant and machinery, machine tools, etc. As compared to consumers industrial buyers are few in number. Therefore, technical
and trade journals are the main media used in industrial advertising. The advertising appeal has to be rational and factual rather than emotional.
3. Trade Advertising:
Trade advertising is directed at wholesalers and retailers. The basic purpose of such advertising is to secure distribution for the product. It
also emphasizes on the high turnover and profits that will accuse to the traders by stocking and selling the product. Direct mail and specialized trade
journals are the main media used for trade advertising. It is also called business-to-business advertising. The goal is to encourage middlemen to stock,
4. Professional Advertising:
Professional advertising is directed towards doctors, engineers, architects, chartered accountants, solicitors and other professionals. Such
advertising is intended to persuade them to buy and recommend the advertised products. For example, pharma companies advertise medicines and
medical equipments to doctors who use and prescribe these products to their patients. Professional journals are the main media used for such
advertisements.
5. Institutional Advertising:
Institutional advertising is done by business houses and institutions to build their image. Such advertising does not attempt to sell anything
directly. It informs the public about what the institution is doing for the society and the country in areas like employment generation, environmental
protection, literacy, health, etc. Institutional advertising is also known as corporate advertising. It is integrated with the public relation function of the
organization
II. On the basis of coverage
1. Local Advertising:
Retailers, cinema theatres and other small firms generally undertake local advertising. For example, shoppers' stop invites customers to feel the
shopping experience. The advertise ment is targeted at people in a particular city or town. Newspapers, hoardings, radio and TV are the main media
used hifor local advertising. Local advertising is also called retail advertising. It seeks to t encourage consumers to shop at a specific store.
2. Regional Advertising:
This type of advertising is restricted to a particular region. Generally, state level print media and regional TV channels are used for regional
advertising.
3. National Advertising:
Business firms having all India business do national advertising. Such advertising seeks to sell branded products in different parts of the country.
Large and well established firms such as Hindustan Unilever, Procter and Gamble, Dabur, Maruti Suzuki, etc. use national advertising to promote their
products. Mass media like national newspapers (e.g., The Hindustan Times, The Times of India) and TV channels are used to spread the message across
the country.
4. International Advertising:
This means advertising designed to promote the same product in a number of countries. Multinational firms treat the whole world as their target
market. Therefore, they advertise their products at the global level. For example, Coca Cola and Pepsi do international advertising.
III. On the basis of subject matter
1. Product Advertising:
Such advertising is done to promote the sale of a tangible product, e.g., ball pen, lipstick, washing 1 machine, jeans, car, etc.
2. Service Advertising:
3. This type of advertising attempts to promote the sale of services which are intangible, inseparable and perishable. Advertisements by banks, hotels,
airlines, beauty parlours, slimming centres, etc. fall in this category. Service advertising has expanded considerably with the rapid growth of the service
sector in our country. Financial advertising done by companies to sell their shares and debentures and by mutual funds is a part of service advertising.
Personal advertisements relating to matrimony, greetings, obituary, etc., can also be included in service advertising.
4. Idea Advertising:
Both business firms and non-profit organizations use advertising to promote some idea. Advertising relating to non-drinking, non-smoking,
AIDS, anti-dowry, environ mental protection, energy conservation, etc., belong to this category. Mass media is used for idea advertising.
IV. On the basis of impact
1. Primary Demand Advertising:
Primary demand means the demand for a class of products and not demand for a particular brand. Primary demand advertising is done to
inculcate the habit for a particular class of product. Generally, the sponsor of such advertising is either the firm which first of all introduces the product
or a trade association. For example, Brooke Bond and Lipton advertised to inculcate tea and coffee drinking in India.
2. Secondary Demand Advertising:
This type of advertising aims to stimulate the demand for a particular brand of the product. While primary demand advertising tries to convert
the non-users into users, selective demand advertising attempts to convert the users of brand 'A' into users of brand 'B'. In such advertising, the
advertiser highlights some unique features and benefits of his brand. For example, ABN Amro Bank highlights in its advertisement that ABN Amro is the
only credit card which pays immediate cash back.
3. Direct Action Advertising:
Such advertising stresses and persuades immediate buying of the advertised product/service. Advertisements for consumer items request
immediate action from consumers. For example, Citibank d asks those who are interested in buying credit cards to dial a toll-free number any time of
the day throughout the year. Generally, time bound offers and coupons are given in the advertisement to create immediate response.
4. Indirect Action Advertising:
Such advertising attempts to create a favourable attitude toward the advertiser and his products/services. The main purpose of indirect action
advertising is to build up image or reputation of the brand. Its effects on sales occur in the long run.
 Objectives of Advertising
I. Communication Objectives of Advertising
1. To Create Awareness:
First of all, advertising informs customers about the existence and availability of a product/ service. It makes the target audience aware of the
special features and uses of the product/service. For example, when a new movie is launched in cinema theatres, its advertisement informs people
about its opening. Advertising creates awareness in a brand and awareness leads to trial purchase. It informs and educates consumers.
2. To Develop Comprehension:
Second communication objective of advertising is to create understanding. Advertising educates customers by providing knowledge about the
product or service. For example, an advertisement of a toothpaste provides knowledge about various properties of the paste and how it can make teeth
strong and sparkle. The advertisement also gives us knowledge regarding how to use the toothpaste. Learning takes place through advertising. An
advertisement for a new brand of mobile phone can communicate exactly how it is better than the existing brands.
3. To Create Conviction:
Advertising seeks to convince the target audience that they will get value for their money by buying the product or service. The superiority of
the brand is highlighted for this purpose. For example, the advertisement for Kellog's cornflakes stresses memory enhancing quality of the product. In
this way, advertising, develops positive attitudes towards the advertised brand and enhances image of the brand in the mind of potential customers.
4. To Create Desire:
Advertising also seeks to convert latent wants and urges into desires through persuasion. Hidden wants are provoked and brought to the
surface through creative advertisements. As a result people work hard to earn money and satisfy their desires. For example, advertisements of life style
products are creating desire for such products in villages. Feelings of energy, warmth, fun, etc., may be created towards the brand. Advertising
influences attitudes.
5. To Secure Action:
The last communication objective of advertising is to persuade people to respond by purchasing the product/service. Communication persuades
people to favour some product, service, idea or institution.
II. Marketing Objectives of Advertising
1. To Increase Sales:
Advertising aims at increasing sales and profits of the advertiser. An advertising campaign attempts to increase demand and sales by increased
use of the product, the frequency of use, the variety of use, the frequency of replacement and so on. New customers are created and existing
customers are induced to use the product more extensively.
2. To Develop Brand Equity:
Repeated advertising seeks to make more and more customers loyal to the advertised brand. People using competitive brands are persuaded to
buy the advertised brand. The target audience is regularly reminded of the superiority of the product. Some brands have become generic names for the
product categories due to frequent advertising over a long period.
3. To Increase Market Share:
Advertising also aims at increasing the market share for the advertiser. Advertising seeks to overcome competition. It is used to capture a larger
part of the total demand. Increase in market share enhances the competitive strength of the advertiser.
4. To Enter New Markets:
Whenever a business firm wants to enter a new market (domestic or foreign) it launches an advertising campaign. Advertising is sought to
facilitate the entry of the firm which has hitherto been dominated by competitors. Advertising supports salespersons.
5. To Build Goodwill:
Advertising also aims at creating reputation for the firm. As stated earlier institutional advertising seeks to improve the public image of the
advertiser.
6. To Introduce New Products:
Another marketing objective of advertising is to facilitate the launch of a new product. The special features and benefits of the new product
are highlighted so that it is quickly accepted by the buyers.

Audience Analysis:
Audience analysis refers to researching a group's interests, preferences, demographic, location, and other aspects. Audience analysis can be
branded or unbranded. Branded analysis means looking at the audience for a specific brand (Apple, Microsoft), while unbranded analysis looks at the
audience for the product type and related topics (computers, tablets, technology).

For businesses, the best audience analysis gives a deeper understanding of what compels consumers to support a brand or purchase. While
understanding the basic demographics of an audience is helpful, it is not as powerful as understanding the intricacies of consumer preferences related to
brand and product.

For example, if a coffee chain wants to attract and retain more customers, knowing the demographics of coffee drinkers in critical locations is only
the first piece of the puzzle. Analyzing the specific coffee preferences of that audience and how they have changed over time can give the brand much more
actionable insights on how to engage consumers.
Advertising Budget
Budget is a future plan of activities expressed in terms of rupees. It is prepared for a specific future time period, e.g., one year. Advertising budget
means a plan that shows the total amount of money to be spent on advertising during a future time period. It also shows the allocation of the total amount
among various advertising activities.

Process of Setting Advertising Budget

1. Deciding Advertising Objectives:

First of all the objectives of advertising are decided. Creating product awareness, increasing the market share, building brand loyalty are the most
common advertising objectives. As far as possible, advertising objectives should be set in clear and quantitative terms. Such objectives help in
determining and allocating the advertising budget and in evaluating advertising effectiveness.
2. Determining Tasks of Advertising:
Once advertising objectives are decided, the tasks to be performed to achieve these objectives are determined. These tasks may include
selection of an advertising agency, choice of advertising media, designing the advertising copy, deciding the timing and frequency of advertisement,
etc.
3. Preparing Advertising Budget:
The cost of each advertising task is estimated. The total cost of all the tasks is the amount of advertising budget. Some modification of this
amount may be necessary for contingencies and flexibility.
4. Approval by Top Management:
The amount of advertising budget decided by the marketing department is sent for approval to the Chief Executive. The budget committee
scrutinizes the budget and makes recommendations. The top management approves the budget with/ without modifications.
5. Allocation of Advertising Budget:
The last step is to allocate the total budget amount among different product lines/products. The amount to be spent on advertising research,
media, copy and other items is specified. While allocating the advertising budget among different products and activities several factors such as the
company's policy, competition, stage of product life cycle, etc., are kept in mind. It is necessary to keep the allocation flexible to take care of sudden
changes in the marketing environment.
Determinants of Advertising Budget

1. Advertising Goals:
The money to be spent on advertising depends on the objectives and tasks to be achieved through advertising. For example, a large
advertising budget is required to create awareness and to generate trial purchase for a new brand. But in case of well established and popular brands,
only reminder advertising is needed.
2. Stage in Product Life Cycle:
Heavy advertising amount is needed during the introduction stage of a product. Similarly high spending is necessary during the growth stage to
invest in and build market share. On the other hand, less advertising is needed during the maturity stage of product life cycle.
3. Competition:
More advertising expenditure is needed when there is severe competition in the market. For example, e-commerce firms like Amazon, Flipkart
and Snapdeal are among the top spenders on advertising in India, Similarly, Coca Cola and Pepsi spend huge amounts on advertising due to keen
competition. Cut-throat competition from Reliance Jio has forced Airtel, Vodafone and Idea to increase their advertising budgets.
4. Financial Resources:
Availability of funds is an important determinant of advertising budget. When limited funds are available, the advertising budget has to be
small. In the words of William Cohen "In some cases your budget will be established before goals and objectives due to your limited resources. It will be
a given, and you may have to modify your goals and objectives. If money is available, you can work the other way around and see how much money it
will take to reach the goals and objectives you have established."
5. Market Share:
In case a firm enjoys high market share less advertising expenditure as a percentage of sales is needed to maintain the market share. On the
other hand, more expenditure is needed in case of low market share so as to increase the market share.
6. Product Differentiation:
When the competing brands are quite similar, more advertising is needed to create differentiation. It becomes necessary to highlight the
unique selling proposition (USP) and other unique features of the brand so as to establish its superiority over the rival brands.
7. Frequency of Advertising:
If the product is purchased very frequently repetitive advertising is required. For example, purchase frequency is very high in case of soaps,
toothpastes, tea, detergents and other fast moving consumer goods. Therefore, Hindustan Uniliver, Procter & Gamble and Dabur are top spenders on
advertising in India. A large advertising budget is needed for frequent advertising.
8. Support From Dealers:
In case wholesalers and retailers 'push' the brand, the manufacturer can afford to spend less on advertising. But if the dealers provide little
support, heavy advertising is required to 'pull' consumers to the brand.
9. Size of the Appropriation:
The marketing mix of the particular product is the most significant factor influencing the size of the appropriation. If the product is one for
which a strong consumer demand can be stimulated, the pull strategy can be used effectively. The budget in such a case might constitute virtually the
entire marketing cost. On the other hand, for many standardized basic products advertising may play a negligible part in the marketing strategy and the
budget may be just less than one per cent of sales.
10. Items to be Charged to Advertising:
The amount of money appropriated to advertising will also depend upon the nature of the items to be charged to the advertising budget. Many
firms charge to the advertising budget any sales promotion type expenditure or goodwill type expenditure which cannot easily be allocated to any
other account. Some firms are prone to charge to advertising such miscellaneous expenses as the cost of Diwali presents to employees, contribution to
the charitable organizations, and costs of entertainment at sales conventions.

Methods of Setting Advertising Budget

The main methods of setting the advertising budget are as follows:

1. The Percentage of Sales Method:

Under this method, the total amount to be spent on advertising is decided by multiplying the value of previous year's sales or projected sales for
the budget period with a predetermined percentage. Different percentages may be fixed for different products, territories, etc. Thus,
Advertising Allocation = X% x * Sales
Advantages:
• This method is very simple, convenient, time saving, and easy to implement.
• The budget varies with what the firm can afford on the basis of its sales turnover.
• This method encourages competitive stability because the outlay is directly related to the funds available on the basis of sales.
• It is financially safe and keeps ad spending within limits.
• It encourages management to think in terms of the relationship between promotion cost, selling price and profit per unit.

Disadvantages:

• This method is illogical because it assumes that sales is a cause of advertising rather than a result.
• It is not very flexible as it does not allow extensive advertising when the need for advertising increases due to a fall in sales.
• The company may overspend when the sales potential is low (high sales volume) and underspend when the potential is high (lowsales turnover).
Advertising outlay is decided by availability of funds rather than sales opportunities.
 • The method discourages an aggressive advertising policy.
• There is limited scope for long-term planning of advertising expenditure because the funds made available will vary in proportion to sales.
• It does not take into account changes in company goals and market conditions. It does not take into account what each product or territory deserves.
The company may lose market opportunities.
• This method in difficult to apply for introducing new products.

2. The Affordable Funds Method:

According to this method, the advertising outlay should be linked with the profitability and liquidity of the firm. Better the financial position more
should be spent on advertising. The advertising expenditure is determined according to what the firm can afford. The advertising budget is set at the level
which the company can afford.
Advantages:
• It limits the maximum expenditure to be incurred on advertising.
• It ensures that advertising money is not being wasted.

Disadvantages:

• It is an arbitrary and illogical method. Advertising budget may be cut when there is need to spend more on advertising.
• It does not encourage long-term planning due to uncertainty of the promotion budget.
• The affordable amount cannot be predicted easily.
• If sales decline the size of advertising budget may be reduced despite sales opportunities.
• There is high likelihood of under- spending or overspending.
• Liquid funds have several possible uses both within and outside the business. They should be employed where they yield the highest return rather than
blindly and arbitrarily earmarked for advertising.

3. The Competitive Parity Method:

In this approach, advertising outlay is decided on the basis of what other firms in the industry are spending. A firm decides its proportion of total
industry advertising expenditure on the basis of its market share. Competitive parity method is often used in conjunction with the percentage of sales
method rather than as a sole criteria.
Advantages:
• This method recognizes importance of competition in advertising and the collective wisdom of the industry.
• It minimizes aggressive action and advertising wars.
• In oligopolistic market where rivalry is intense, it helps to stabilize market shares and prevents competitive retaliation.

Disadvantages:

• Imitating the competitor's budget is not logical because the objectives, strategies, reputation, opportunities and programmes of the firm may differ from
those of its competitors.
• Competitive parity overlooks the production and marketing levels which have a significant impact on the budgeting process.
• The method is not always feasible because competitors keep their plans secret.
• The imitator may be unable to afford the budget of the competitors.
• There is no valid basis for assuming that the competitors actually set their budgets on a really sound basis.

4. The Objective and Task Method

In this method, the amount to be spent o advertising is determined keeping in view the pre-determined objective and task advertising. This
involves following steps
(a) Define the objective, e.g., the sales target to be achieved or market share, say 25 percent;
(b) Outline the tasks, i.e., the specific means and media of achieving the objective
(c) Estimate the cost of accomplishing the task;
(d) Monitor to judge how well the objectives are being attained; and
(e) Re-evaluate objectives and appropriations

Advantages:
• The method appears to be most logical to meet dynamic make conditions because advertising outlay is decided on the basis of the goal to be achieved
and the means of achieving it.
• This is the most widely used method by advertisers all over the world.
• It recognizes the fact that advertising plays a vital role in stimulating demand and creating sales.

Disadvantages:

• The main problem with this method is that the link between the objective and the outlay is not clear.
• It is very difficult to convert qualitative objective into quantitative terms.
• Another problem is to determine what objectives are worth the cost of attaining them. The problem with this method is that it is very difficult to
determine just how much and what type of advertising will be necessary to achieve the established objectives or results.

5. Marginal Analysis Method:

According to marginal analysis, a firm should continue to add to the advertising budget so long as the incremental expenditures are less than the
marginal revenue they generate. Marginal analysis is based on the functional relationship between advertising expenditures and sales. But it is most
difficult to determine such a relationship. First, the assumption that advertising expenditures create immediate sales is not always true. Second, it is not
easy to determine the shape and parameters of the relationship. Finally, the relationship changes through time.