Budgeting (communication policy)

The budgeting is a key decision facts in the context of communications planning . There are two starting points to start with: the communication goals and the planned measures. Here the problems of determining the budget amount and the distribution of the budget in terms of time and subject matter have to be solved. After the amount of the total budget has been determined, the budget is distributed over the products , the advertising media and advertising material as well as according to regions in terms of time and material as part of the spread planning . The problem of media selection must always be taken into account.

The ideal typical process

After defining the communication goals and the planned communication measures, a preliminary budget, i.e. the expected implementation costs of the measures, is calculated. If this provisional budget exceeds the expected maximum budget, the goals and the communication measures are reconsidered and restructured, whereupon a further provisional budget is calculated. If the provisional budget does not exceed the expected maximum budget, i.e. the expected implementation costs are “financially viable”, the required financial resources are released.

Classification options for the methods

There are a variety of methods and criteria for determining the budget size. The methods can be systematized on the basis of 2 criteria:

The first criterion is the effect-based and non-effect-based methods. The impact-based methods depict the relationship between the budget amount and the degree of target achievement in a response function. The non-effects-based methods, on the other hand, neglect this causal relationship.
The second criterion is represented by the monovariable and the polyvariable approaches. With the monovariable approaches, the budget amount is determined on the basis of a single influencing factor, whereas with the polyvariable approaches it is determined by several influencing factors.

The individual methods

The planning indicators and the target-task method fall under the monovariable, non-effect-based methods. The monovariable effect-based methods include the response functions with linear, degressive and s-shaped progression.

Monovariable non-effects-based methods

Monovariable, non-results-based methods only relate to one influencing factor and ignore the relationship between the budget amount and the degree of target achievement.

Planning indicators

This becomes clear when you look at the four best-known planning indicators.

Alignment with the available financial resources: Here, the budget amount is only based on the available liquid financial resources. (Assumption: There is a lot of money in the till, so a high budget is also released)
Alignment with sales : The budget is adjusted to the total sales of the company. (Assumption: The company makes a very high turnover, but a relatively low profit compared to turnover, nevertheless a high budget is released for the communication measures)
Alignment with profit : The same process as with the previous point, only that one is oriented towards the amount of profit that the company generates.
Alignment with the advertising expenditures of the competition : The market position, the turnover and the profit of the own company are neglected when determining the budget. Only the advertising expenditure of the competition is taken into account and your own budget is adapted to that of the competition.

The advantage of these planning indicators is that very little data is required to come to a decision on the budget amount. The simplicity of these models and the quick generation of results make them very appealing when you B. wants to enter a new market. One of the disadvantages of this method is the lack of methodological orientation when determining parameters. Furthermore, with the second method there is a risk of the communication policy becoming procyclical. The process is based on a circular argument that can be misleading and therefore there is a possibility that it will lead to wrong decisions. With the first and third methods, the lack of a logical connection and the risk of misallocation are to be criticized. Furthermore, there is no corrective connection between the advertising expenses and the available financial resources. The fourth method is an instrument for assessing one's own situation, but does not offer a clear criterion for determining one's own budget due to the different situation conditions.

Goal and task method

The planning process for this method consists of three steps: The first step is to set the advertising goals . A distinction must be made between quantitative and qualitative goals. The actions and tasks to be carried out that are necessary to achieve these goals are defined and described. As a third and final step, the costs for carrying out the identified actions are calculated.

Another advantage is the simplicity of this model, as well as the fact that there is a logical connection between the target values and communication measures. This model also allows various other influencing factors to be taken into account, albeit to a limited extent. Compared to the planning indicators, the goal and task method has a relatively high planning effort, which is reflected in the time required to carry out this method. As with all non-impact-based methods, the relationship between the budget amount and the degree of target achievement is not taken into account and the cost-benefit ratio of the degree of target achievement is not checked .

Monovariable effect-based methods

Advertising response function

Advertising response functions are based on empirically determined parameters and represent the cause- and -effect relationship between the communication budget and a communication target. From this, plans for the future and precise prognoses can be derived and there is a positive relationship between the communication budget and the communication goal assumed (in the case of a communication causing reactance it can of course be different). In general, three central types of advertising effectiveness functions can be distinguished: the linear advertising effectiveness function, the degressive advertising effectiveness function and the S-shaped advertising effectiveness function.

Linear advertising effectiveness function

Example of a linear advertising effectiveness function: with ${\ displaystyle X (W) = a + b * W}$

X = target sales volume depending on W.
W = advertising budget
a = positive parameter.

From W = 0 we get X (W) = a.

a thus represents the basic paragraph independent of the budget. From W = ∞ we get X (W) = ∞. A positive linear relationship between advertising expenses and the sales achieved is assumed.

Degressive advertising effectiveness functions

Since it can be assumed that the communication effect cannot be increased at will, but is limited by a maximum value, degressive and S-shaped functions are usually more realistic. Both have already been empirically proven.

Example of a degressive advertising effectiveness function: with ${\ displaystyle X (W) = x + e ^ {from / W}}$

X is the sales depending on the advertising budget W.
a is a positive scaling parameter and b is a positive response parameter (the smaller b, the faster the function increases).

W = 0 results in X (W) = x.

x hereby represents the basic sales independent of the communication budget.

From W = ∞ we get X (W) = x + e ^ a.

Thus x + e ^ a represents the maximum sales that cannot be increased even by increasing the advertising budget.

S-shaped advertising effect functions

Example of an S-shaped advertising effect function: with ${\ displaystyle X (W) = x / (1 + e ^ {ab / W})}$

W = advertising budget
X (W) = target size
a = positive scaling parameter
b = positive response parameter
x = saturation quantity (maximum sales quantity)

From W = ∞ we get X (W) = x and with W = 0 we get the basic principle of x / (1 + e ^ a).

Advantages:

quantifiable quantities
Consideration of the effect
Forecasts and planning possible

Disadvantage:

So far only one independent variable has been included, are there any others?
how stable are the interrelationships?
Environmental conditions are viewed as constantly stable → these models are only suitable for use under relatively stable conditions.

literature

Heribert Meffert : Marketing. Basics of market-oriented corporate management; Concepts, instruments, practical examples. 9th, revised and expanded edition. Gabler, Wiesbaden 2000, ISBN 3-409-69017-4 .
Christian Homburg , Harley Krohmer : Marketing Management. Strategy - instruments - implementation - corporate management. 2nd, revised and expanded edition. Gabler, Wiesbaden 2006, ISBN 3-8349-0063-X .