The advertising budget

Advertising expenditures in the United States are now running at a rate of over $18 billion a year. With such a vast sum being spent, it would seem natural to expect that business would use a scientific method for appropriating this money. In some cases it does. But for the most part, the usual practice is for a business firm to allocate a certain percentage of its sales to advertising. Then, if sales go down, the advertising budget is automatically cut.
When sales go up again, the budget for advertising is once more increased. This practice has been criticized, not only as unscientific, but actually as defeating its own purpose. When sales are down is when more total sales effort is needed, not less.
With the greater acceptance of the marketing concept, including the partnership of sales and advertising, management has now begun to re-examine its total marketing policy. This is leading to policy changes in the setting of the advertising budget.
One improved approach to setting the advertising budget is to work on the premise that advertising is an investment. Since most advertising is cumulative and there is a time lag between the appearance of the advertisement and the total impact upon the consumer, it is extremely difficult to establish the proper credit for such impact.
This approach to advertising recognizes that advertising often is intended to lay the groundwork or create the proper atmosphere for the sale. As such, advertising expenditures are viewed as a long-term investment, and the total amounts spent are amortized over a period of years, much as machinery and equipment are amortized. Sales increases are then measured as a return on this investment. So far, however, it is impossible to determine what share of the total sales increase is attributable to advertising, and what are the other elements of the total sale.
Another, more scientific approach to setting the
advertising budget, is the so-called task method. Under this method, the company sets an objective. It then determines, as closely as it can, how much it will cost to attain that objective. It allocates a given amount to personal selling, a proportion to sales promotion, and the balance to advertising.
This method is called scientific because it sets a precise objective or goal, isolates the task or tasks, and then allocates the necessary money to reach the objective.
Many companies are moving towards this latter method of setting the advertising budget. The task of doing this has become easier with the general spread of the philosophy of the marketing concept, involving as it does the application of scientific methods of management to the marketing functions. One of the precepts of scientific management is, as we know, the setting of definite objectives. Since, of necessity, each company will set its own goals, we can say that every advertising budget, however determined, is tailor- made for the company.