Connect Chapter 8 Homework Saved Help Save Exit Submit Assu

Connect Chapter 8 Homework Saved Help Save & Exit Submit Assume that you have decided to start your own business after graduating college. Among the many decisions you will have to make, a critical one will be how much to spend promoting your new business and how to allocate those dollars. By understanding the advantages and disadvantages associated with each method of promotional budgeting. you will better understand which budgeting method is best for your business and level of risk tolerance Determining the appropriate promotional budget is an important decision within any marketing strategy. Firms that set the budget too low risk blending into the competition and are often ineffective in communicating value to potential customers. Firms that set the budget too high open themselves up to waste and lower profits. Promotional budget decisions should consider a variety of factors, 14.32 points such as the types of products sold by the firm, the geographic location of the firm\'s customers, and the level of competition in the industry. Firms typically determine their promotional budget using one of three methods: (1) the affordable method, (2) the percentage- of-sales method, or (3) the objective-and-task method. Select the appropriate promotional budgeting strategy for each advantage and disadvantage Print References 1. Bottom up approach focused on what the organization wants to achieve Click to select) 2. Fiscally conservative, top-down approach that helps to make sure that promotional elements don\'t break the budget for your new company liek to select 3. Simple method that makes sure that the promotional budget grows as your company grows 4 Guarantees virtually nothing except that the money you allocate will be spent 5. Requires more of your time and judgment to decide on the required tasks 6 Allows the promotional budget to be reduced at times when your company is struggling with lower revenues affordable method percentage-of-sales methed

Solution

1.

Bottom up approach is opposite of top down approach and do not consider macro economic factors first while deciding the investing decision in Investment i.e. Fundamental Factors specific to the firm are taken care first rather than macro factors i.e. GDP,, Interest Rate, Inflation etc.

Here Bottom up approach is related with organization and its promotional budget. i.e. Companies must have defined advertizing budget and will perform strategy and tactics for getting the result associated with their budget of Advertizing.

This comes under Objective and Task Method.

2.

Fiscally conservative, top-down approach that helps to make sure that promotional elements don\'t break the budget for your new company focuses on affordable budget. As here company budget does not based on any definite objective, the company might spend little or much more relative to its requirement or need.

So here firm focus on top down approach i.e. Macro factors and let these factors decide how much their firm can afford the promotional budget.

So here it is Affordable Method.

3.

Here percentage of sales method is appropriate as below example:-

Suppose sales is $100 and 5% of sales is given to promotional budget, Now suppose sales changes to $120 and this will change promotional budget to $6 from initial value of $5.

So here as the firm grow (Increased Sales) Promotional Budget also grows.

4.

Here Affordable Method will come.

Affordable method is common in most of the small businesses,but this may occur when a firm does not have or see promotional strategies as an marketing or investment strategy.

Major disadvantage of the this method is that firms who allocate a random dollar amount to the promotion budget (as firms in this method provide value to promotional budget based on their capability) guarantee virtually nothing except that the money will be spent i.e.Marketing team spends money on promotion at the end of the year because money was there to spend rather than because it was helping them achieve organizational goals.

5.

Here Objective and Task method will come.

As in objective-and-task method, bottom-up approach is used for promotional budgeting in which Specifc Objectives are defined, Strategies or Tactics for achieving these objectives are determined estimation of costing is performed.By kowing what the organization wants to achieve, the marketing team uses each dollar in the specific promotion elements that deliver best result on those objectives.

Major disadvantage of this method is that this method takes more time and judgment for deciding and evaluating the required tasks and cost. Firms must consider this time an investment rather than a hinderence for getting best result by allocating resources in optimum possible ways.

6.

Here Percentage of Sales method will come.

As given in point 3, as Sales increased from $100 to $120, Promotional Budget increased from $5 to $6 because it was associated with Sales (5% of sales).

Now in Struggling position where firm is experiencing decline, sales will decrease and accordingly their Promotional budget. This is one of the disadvantage associated with Percentage of Sales method \"As Sales decreased budget decreased:.

Example:-

Suppose sales decreased to $80 from $100, so promotional budget will get reduced to 5% of 80 = $4 from initial value of $5 (5% of 100).

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