In this method, managers establish budget amount by matching the competitions % of sales expenditure.
The argument is that setting budgets in this fashion takes advantage of collective wisdom of the industry.
It also takes competition into consideration which leads to stability in the market place by minimizing marketing warfare. If companies know that competitors are unlikely to match theirs increases in promotional spending, they are less likely to take an aggressive posture to attempt to gain market share.
This minimizes unusual or unrealistic advertising expenditure.
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