Published in Marketing and Strategy Terms by MBA Skool Team
What is Advertising Appropriation?
Advertising appropriation is the amount of money or budget which is kept aside for marketing / advertising for a specified time period by an organization. Advertising appropriation is an important aspect of marketing and advertising, so that better planning can be done with the allocated funds. There are numerous ways in which advertising appropriation amount can be allocated.
It can be allotted based on certain parameters like a certain percentage of revenues or sales. However, this is not a very definite way of allocating funds as fluctuations in sales or revenues can adversely affect the advertising appropriation.
Factors affecting budget decisions
1. A stage in the product life cycle-new products requires large advertising budgets to build brand awareness in comparison to established brands.
2. Market share and consumer base- High market share brands need less ad expenditure as a percentage of sales to maintain share
3. Competition and clutter- in a market with high competition, a brand must advertise heavily to get heard. Cluttering of advertisements confuse the customers and make them forget your brand easily.
4. Advertising frequency- the number of times the ad is displayed puts an impact on the advertising budget
5. Product substitutability- Brands belonging to less- differentiated or commodity-like product classes (like soft drinks, airlines, banks etc.) need heavy advertising to establish a unique image.
There are number of methods which companies apply to decide upon their advertising appropriation policy. Some of the important methods used are listed below:
One of the methods is to find out what the company can afford in a given business situation. However, according to this method, advertising opportunities are usually overlooked because the advertising expenses are considered to be unaffordable. For Eg.- for a start-up company, investing in advertising would cost a lot.
Percentage of Sales method
The advertising spend can be some percentage of the sales revenue of the company.
For example: a 2% advertising spend decided on a $ 5 Million p.a. revenue company would come out to be $ 10,000.
Percentage of Profit method
The ad spent percentage is related to profits instead of sales, wherein profit provides even more assurance than sales.
Competitive parity method
The method takes the total budget to be allocated for advertising to be at par with hat of competitors to prevent any price wars. For Eg- Unilever spending nearly equal on their personal care category advertising.
Returns on Investment method
In this method, all the profits generated by advertising are compared with the cost of the funds and a proportional ad budget is decided.
Objectives and tasks method
Advertising objectives are decided upon for the coming budget period and all the costs that would be incurred for achieving these objectives are calculated in terms of the tasks to be performed.
Hence, this concludes the definition of Advertising Appropriation along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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