Budget Allocation

While many companies are spending more money on sales promotion than on media advertising, it is difficult to say just what percentage of a firm’s overall promotional budget should be allocated to advertising versus consumer- and trade-oriented promotions. This allocation depends on a number of factors, including the specific promotional objectives of the campaign, the market and competitive situation, and the brand’s stage in its life cycle.

Consider, for example, how allocation of the promotional budget may vary according to a brand’s stage in the product life cycle. In the introductory stage, a large amount of the budget may be allocated to sales promotion techniques such as sampling and couponing to induce trial. In the growth stage, however, promotional dollars may be used primarily for advertising to stress brand differences and keep the brand name in consumers’ minds. When a brand moves to the maturity stage, advertising is primarily a reminder to keep consumers aware of the brand. Consumer-oriented sales promotions such as coupons, price-offs, premiums, and bonus packs may be needed periodically to maintain consumer loyalty, attract new users, and protect against competition. Tradeoriented promotions are needed to maintain shelf space and accommodate retailers’ demands for better margins as well as encourage them to promote the brand. A study on the synergistic effects of advertising and promotion examined a brand in the mature phase of its life cycle and found that 80 percent of its sales at this stage were due to sales promotions. When a brand enters the decline stage of the product life cycle, most of the promotional support will probably be removed and expenditures on sales promotion are unlikely.

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