Marketing Communication Budget Allocation
Marketing managers need to analyze the goals of marketing communication, develop a plan, appraise the tasks and essential resources, and lastly create metrics and a control process to confirm the budget of marketing communication budget (Hanssens, 2003). Hanssens (2003) stated that the purpose of marketing communications is to facilitate the profit growth of an organization.
As marketing communication is necessary to encourage brand awareness, educate the customers about the product, maintaining brand image, and convince the customers to purchase the product it is critical to correctly determine how much cost needed to be invested in the marketing communication (Buratto, 2020)
Factors to be considered when making marketing communication and budget allocation decisions
According to Gordon et al. (2015), to correctly allocating the marketing communication budget managers usually considering these three factors: spending criteria (sales, profit, market share, competitive intensity); weights and guardrails (threshold, criteria weights); and allocation unit (market, product, brand, etc.)
How these factors relate to the relative allocations between advertising and sales promotion
Spending criteria (sales, profit, market share, competitive intensity) — The spending criteria are the most important factor to be considered before determining a budget for marketing communication. For example, if the rate of sales is considered low, and the appropriate marketing channels are still not utilized efficiently, the manager might adjust the strategies by pooling more budget to the appropriate channel to generate more sales. This logic can also be applied to the other spending criteria, such as competitive intensity. If the rate of competition is high, the managers might think to check on other competitors, analyze what kind of marketing communication channels they are using, and adjust the advertising strategy based on that approach. Another case is, if the company holds a big market share, they might want to allocate more budget to maintain their position as the market leader.
Weights and guardrails (threshold, criteria weights) — After determining the criteria, a company sets the weight and threshold for each criterion. This factor affects how much each criterion influences the budget allocation decision. According to Gordon et al. (2015), the company can set the weights and guardrails by using a regression model to test the accuracy and the relative influence of each criterion.
Allocation unit (market, product, brand, etc.) — The last factor is the allocation unit. The marketing managers should analyze how many units of products they need to sell, how big the market will be, how strong their brand is, and other things that might affect the allocation unit. This factor might affect the budget in the sense that the manager should decide on how much they must spend on the marketing communication cost for the products.
Conclusion
The marketing managers should make a careful calculation in determining marketing communication budget allocation. They should consider the biggest three factors (Spending criteria, weights and guardrails, and allocation unit). These factors also might be influenced by the nature of the market and product, product life cycle stage, and also consumer behaviors. Gordon et al. (2015) added that companies should transform their approach into a more analytical, granular, and fact-based approach to make a more efficient budget allocation for marketing communication.
References
Buratto, A. (2020). Budget allocation in the Integrated Communication Mix. Rendiconti per gli Studi Economici Quantitativi, 1, 91–101. https://www.researchgate.net/profile/Tiziano-Vargiolu/publication/228470718_Optimal_default_boundary_in_discrete_time_models/links/02e7e526fa1303fee0000000/Optimal-default-boundary-in-discrete-time-models.pdf#page=91
Gordon, J., Basu, A., & Klapdor, S. (2015, April 1). How to reallocate marketing budgets to drive growth. McKinsey & Company. https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-to-reallocate-marketing-budgets-to-drive-growth
Hanssens, D. (2003). Budget allocation in the Integrated Communication Mix. Measuring and Allocating Marcom Budgets: Seven Expert Point of View, 17–21. https://faculty.wharton.upenn.edu/wp-content/uploads/2012/04/Measuring_allocating_marcom_budgets_2003.pdf
Note:
This article is written based on University of The People Marketing Management (BUS 5112) written assignment by Fristy Tania in October 2021
