The allocation of monetary resources to sales promotion is determined by the promotional strategy of the firm.

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In most cases, first the total amount of money for promotion is determined then it is budgeted for different activities.  Before deciding the money allocated to sales promotion, the management should evaluate relevant factors such as type of product, its stage in PLC, the market situation, level of competitive activity, etc. All these factors, alone or in combination, can significantly affect the promotional budget.  There are five important techniques that are commonly used to allocate funds to sales promotion.

 

¨      Percentage of sales method

 

The percentage of sales method to allocate the funds is probably most popular among companies.  In this approach, the budget is determined by taking a fixed percentage of sales.  The sales figure taken could pertain to the previous year, or the average of several past years.  This percentage could also be based on the forecasted sales of the year under consideration.

 

¨      Unit of sales method

 

This method is commonly used by companies dealing in high-priced products, generally consumer durable goods such as four and two wheeler auto-manufacturers, refrigerators, washing machines, microwave ovens, entertainment electronics and many other items.

Instead of rupee value of sales, as in the previous method, the base is the physical volume of either the past or anticipated sales.  This figure of units is then multiplied by a fixed amount of money to reach the budget amount.  For example, the manufacturer might allocate Rs. 2000/- per unit for sales promotion.

 

¨      Competitive parity method

 

Many marketers match or base their sales promotion budget to that of the major competitors.  The logic attributed to this method is that the collective minds of the companies in the industry probably generate promotion budget that are close to optimal and any departure from the industry norms may lead to promotion war.

 

¨      All you can afford method

In using this approach to budget allocation, the amount that is leftover after all other relevant allocations have been made, is earmarked for sales promotion.  This approach is used, generally, by companies with small budget, or by some other companies, large as well as small, when they are introducing a new product.  It is merely an availability oriented budget and quite unsophisticated.  Apparently, there is no realisation that in a competitive market situation, sales promotion mainframe sales in many ways.

 

¨      Objective end task method

 

As mentioned earlier, the promotion budget is determined by the overall promotional strategy.  Objective end task method approach is the one which is driven by strategy.  This is also the most popular technique to decide the sales promotion budget.  The promotion manager starts by making a thorough study of the market, the product, competition and consumer behaviour in order to set up appropriate promotion objectives.  These objectives may relate to increasing short-term sales, introducing a new product, stimulate trial, increasing distribution, etc., within a specified period of time.  Next step is to determine how much money would be necessary to accomplish each task involved in achieving the objectives.  If the costs happen to be more than the money available, then either the promotion objectives adjusted or more funds are made available from the contingency reserve or by reducing the budgets of the other promotional activities.

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