Page 170 - DMGT507_SALES AND PROMOTIONS MANAGEMENT

Sales and Promotions Management

Notes 3. Competitive Parity Method: Many marketers feel comfortable in matching or basing
their sales promotion budget to that of the major competitors. The logic attributed to this
method is that the collective minds of the companies in the industry probably generate
promotion budgets that are close to optimal and any departure from the industry norms
may lead to promotion war. This method has the advantage of recognising the importance
of competition in sales promotion. If a competitor’s promotion budget is very high, then
spending too little on promotion will amount to wasting money. Often, this approach
sends clear signals to other firms and minimises the chances of marketing warfare. The
method is easy to use because the only information required is about the amount of
money expended by competitors. This information is generally available in different
industry publications.
There are limitations inherent in this approach. Assuming that there are three major
competitors, each might have a different sized budget. This approach also assumes that
the company’s objectives are the same as those of the competitors and that the competitors’
budget allocations to promotion are correct. It is likely that the situation of the company
considering budget allocation is unique and whatever the competition is doing should
not be followed. The information about the competitors’ expenditures on promotion is
available only after the money has been spent and may have no relevance to the future.
There seems to be no solid logical explanation supporting this method. This approach to
allocating the monetary resources to sales promotion fails to reflect the individual
company’s marketing requirements.

4. All-you-can-afford Method: In using this approach to budget allocation, the amount that
is left over after all other relevant allocations have been made is earmarked for sales
promotion. This approach is used, generally, by companies with small budget or by some
other companies, large as well as small, when they are introducing a new product. It is
merely an availability oriented budget and quite unsophisticated. Apparently, there is no
realisation that in a competitive market situation sales promotion may influence sales in
many ways.
5. Objective-and-task Method: As mentioned earlier, the promotion budget is determined
by the overall promotional strategy. Objective-and-task approach is one which is driven
by strategy. This is also the most popular technique to decide the sales promotion budget.
The promotion manager starts by making a thorough study of the market, the product,
competition, and consumer behaviour in order to set appropriate promotion objectives.
These objectives may relate to increasing short-term sales, introducing a new product,
stimulate trial, or increasing distribution, etc., within a specified period of time. The next
step is to determine how much money would be necessary to accomplish each task involved
in achieving the objectives. If costs happen to be more than the money available, then
either the promotion objectives are adjusted or more funds are made available from the
contingency reserve or by reducing the budgets of other promotional activities.
A major advantage of this method is that it is a bottom-up approach in developing the budget.
This method works and is not dependent on past or future sales or how much the competition
has spent. The promotion manager is concerned with those factors which are considered
controllable. This method is particularly suitable for new products where the promotion has to
be developed from a scratch. It is equally suitable for existing products as well. The results of
this method are directly related to the preciseness of the objectives and the amount of money
allocated to each activity.
Often objectives stated are vague and accurate money allocation is difficult. These aspects pose
problems in some cases.

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