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One of the most difficult marketing decisions facing companies is how much to
spend on promotional John Wanamaker, the departmental - store magazine,
said, "I know that half of my advertising is wasted but I don't know which
half."
Thus it is not surprising that industries and companies vary considerably in how
much they spend on promotion. Promotional expenditures might amount to 30-
50% of sales in case in cosmetics industry and only 10-20% in the industrial
equipment industry. Within a industry, a low and high spending companies can
be found.
How do companies decide on their promotion budget? There are mainly four
methods of this :
• Affordable Method :
Many companies set the promotion budget at what they think the company can
afford. One executive explained this method as follows : "Why, it’s simple.
First I go upstairs to the controller and how much they can afford to give us this
year. He says a million and half. Later, the boss comes to me and asks how
much we should spend and I say ‘Oh about a million and half."
It is a method which is uncertain one and makes long term planning difficult.
• Percentage of Sales Method :
Many companies set their promotion expenditures at a specified percentage of
sales. Accordingly the sales is set on the basis of sales.
In this a specified sales percentage is decided for the promotional budget
Advantages of this method :
First, its use means that promotional budget vary with what a company can
afford.
Second, it encourages the management to think in terms of the relationship
among promotion costs, selling price, and profit per unit,
Third, it encourages the competitive stability to the extent that competing firms
spend approximately the same % of their sales on promotion.
Inspite of the advantages, the % sales method has little to justify it. Its
reasoning is circular : It views sales as the determiner of the promotion rather
than as a result. It leads to budget setting by availability of funds rather than by
marketing opportunities.
• Competitive Parity Method :
Some companies set their promotional budget to achieve share-of-voice parity
with other competitors. Two arguments are made in support of competitive
parity method. One is that the competitors expenditure represents the collective
wisdom of the industry. The other is that maintaining a competitive parity helps
prevent promotional wars.
Neither argument is valid. There are no grounds for believing that competition
knows better what should be spent on promotion.
• Objective and Task Method :
The objective & task method calls upon marketers to develop their promotion
budgets by defining their specific objectives, determining the task that must be
performed to achieve these objectives, and estimating the cost of performing
these tasks.
Deciding on the promotion mix :
Companies face the task of distributing the total promotion budget over the five
promotional tools :
• Advertising
• Sales Promotion
• Public Relations and Publicity
• Sales Force
• Direct Marketing.
Whatever method a company adopt for promoting its product it must be from
above mentioned method.
Sales Promotion
Promotion is the final element in the marketing mix. After the nature of product is
decided, its price fixed and the methods of distribution decided, the manufactures has to
take effective steps in meeting the consumers in the markets. In the present consumer
oriented markets it is the duty of manufacturers to know what is required by the
consumer. It is also their duty to make the customers know where, when how and at what
prices. The products would be available.
Meaning of Promotion
The term promotion is the term and includes mainly three type of sales
activity :
1. Mass impersonal selling methods (Advertising).
2. Face to face personal selling (Salesman ship).
3. Activities other than personal selling and advertising such as point of
purchase display (P.O.P.) show and exhibitions, demonstrations and other non
securing selling efforts. This form of activity is called ‘Sales Promotion’.
There are two type of promotion blends :-
1. Pull Blend.
2. Push Blend.
Both of these are closely related to the channel of Distribution.
1. A pull blend is one in which mass impersonal, sales efforts are given the
greatest emphasis. The purpose of pull blend to pre-sell to the final consumers.
So that they demand the product at the retail level of distribution. The firm
adopting this strategy would spend more on advertising and sales promotion
rather than in personal selling. These efforts pull down the product from the
manufacturer.
2. A push blend emphasizes personal selling. Naturally firms adopting this
method develop a strong sales force at both the distributor and the dealer level. This
method would tends to push the product through the channel of distribution.