Methods for calculating the budget of an advertising campaign with an example. Methods for determining the company's advertising budget. Product life cycle

Consider now how I determine the size general advertising budget for the planned period (year). Once the advertising communications and promotion strategies have been determined, this budget can be allocated to individual campaigns (see Chapter 11). From our point of view, determining the total amount of the budget is a logical conclusion of the process of setting marketing goals.

Determining the size of the PC budget requires that profit, sales, or market share be considered as specific tasks advertising or promotion. The manager must relate the costs of future activities, which are determined at the beginning of the year, to profit, sales or market share, expected to the end of the year.

Accurately determining the size of the budget on the PC is not an easy task. We will give some general recommendations that can simplify it somewhat. The description of the two methods by which the size of the budget is most often determined will be given below: the method of goals and objectives and the expert method. We will then present several ad hoc approaches applied to new and existing products. In conclusion, we will once again return to the problem of the quantity and quality of spending on advertising.

Here are three tips we're sure will help a manager plan their advertising spend.

2. Use at least two methods.

3. Be flexible with your budget.

estimate of total costs. You should start building a budget as if it consisted only of total advertising costs. (The only exceptions are firms that sell their products through grocery stores and pharmacies and traditionally prefer sales promotion. Promotion allocation should be approximately proportional to the planned market share, more precisely, the planned share in the distribution channels. The manager can then follow our procedure for determining advertising costs .) It is much easier to predict how sales will be affected by advertising than any other form of promotion. After the total amount of advertising costs has been determined, it is possible to decide how to distribute it among various means of advertising and stimulation (read about IMC in Chapter 11, about the choice of advertising media - in Chapter 15).

use at least two methods. When determining the size of the total advertising budget, not to mention the budgets of individual companies, it is rarely possible to get an accurate and reliable figure. This is because, as a rule, there is no complete picture of the relationship between consumer exposure to advertising and his response. In addition, the future is generally difficult to predict (especially for a long period). Therefore, it is reasonable to calculate the size of the total advertising budget using at least two methods: if one turns out to be imperfect, then you can rely on the other. The final budget should be based on a reasonable combination of the two methods. Later we will talk about which combination of methods is best to choose in a given situation.

Be flexible with your budget. We are currently in the process of determining the size of PC's total starting budget for next year (a typical planning horizon). But the budget is always a forecast. During this year, the starting figure will be revised many times, taking into account the effectiveness of conventional advertising in relation to other PC options, the quality of advertising, the actions of competitors and corporate decisions for a given budget. In addition, the budget should be increased when PC activities are proving to be effective, and reduced (or even discontinued) when they are ineffective. We specifically stipulate the need for a flexible approach, because in practice annual budgets are too often perceived as fixed, unchanging. As a result, the firm fails to take advantage of an excellent advertising campaign or, on the contrary, wastes money.

Non-analytic methods are based on experience or simplified decision rules. Non-analytical methods greatly simplify planning, but have little to no connection with marketing goals.

Analytical Methods are based on the search for a functional relationship between the advertising budget and the level of achievement of marketing goals. This method requires the advertiser to form their advertising budget based on specific goals and objectives and their costs. The sum of all these costs will give an approximate figure for the budget appropriations for advertising. The advantage of this method is that it requires management to clearly state their views on the relationship between the amount of advertising costs, the level of advertising contacts and sales effectiveness.

From a level position, the advertising budget can be planned based on several marketing strategies, set an upper or lower level for each of the marketing variables - price and advertising budget. Then the market penetration strategy can be specified using the matrix "product price - advertising budget" (Fig. 7.8).

The types of advertising budget plans include the following options: limit planning, when the budget is set by the advertiser and advertising activities are carried out within the allocated funds; floating bar means changing the advertising budget depending on the marketing situation; planning with flexible target deficit means that performers can spend more money on an advertising campaign if it becomes possible to achieve some pre-specified goals that are specified as important but not mandatory; tunnel planning is used when planning the budget for several advertising agencies depending on the media, and the transfer of funds from one to another is not possible; free planning lies in the importance of allocating any amount of the advertising budget to achieve marketing goals.

1. Calculation of the minimum advertising budget. There is a list of types of advertising performed by different advertising agencies or one complex agency. Each type of advertising contains a certain number of different evaluation criteria and performance values. The size of the advertising budget is known. It is necessary to determine a set of types of advertising that provide the required efficiency with a minimum cost within the advertising budget.

Thus, the goal of the problem is to minimize the cost of a set of types of advertising required for an advertising campaign.

Task parameters: P- the number of different types or varieties of advertising offered to the advertiser; T - the number of advertising effectiveness criteria; aij- content i th performance criterion in j-th form of advertising i=1,…,m:, j = 1,…,n; b i- amount of value i-th criteria required by an advertiser in an advertising campaign ; with i - unit cost i-th type of advertising; x i is the quantity i-th the type of advertising included in the advertising campaign for a given advertising budget. The conditions for determining the quantity of each type of advertising have the form of a linear mathematical model

The optimality criterion C has the form:

Solving the mathematical model, the values ​​are determined x i- share of funding i-x types of advertising necessary to solve the tasks at hand, the amount of which determines the optimal minimum advertising budget

2. Budget development based on cash availability (residual budget method). Using this method means that the firm spends as much money on advertising as its management thinks it can afford. This is the simplest method that does not take into account the real goals and objectives of the company, but rather shows the state of affairs in the absence of specific advertising objectives. The budget is cut when things go wrong; when there is money, it is spent. Such advertising expenses are justified as long as they do not exceed the optimal level of normalized advertising costs or the amount of profit from which they are formed, or the size of the marketing communications budget.

3. Development of an advertising budget for cost planning basis. The advertising cost plan is an estimate of the costs of various planned activities aimed at achieving the goals. Its purpose is to determine the dependence of turnover growth on advertising costs.

4. Calculation method as a percentage of the amount of sales(current or expected) or to the selling price of the goods, i.e.

This is the easiest way to calculate your advertising budget. The sales forecast is calculated on the basis of compiling a statistical sales trend. The percentage is traditional for each enterprise or is guided by traditions in the industry. About 15% of entrepreneurs use this method. For example, the advertising share at the stage of brand promotion reaches 20% of the revenue, at the stage of a fait accompli promotion 0.5 - 4%. It is possible to single out periods that are more attractive for an advertising campaign and less attractive for this.

In order to plan the amount of allocations for an advertising campaign, first of all, based on experience, it is necessary to build an indicative schedule for the dynamics of the sale of goods based on the seasonality of demand for goods or the ongoing marketing policy of the enterprise (see Figure 7.9). Advertising fees are determined as a percentage of revenue. The graph in fig. 7.9 will allow you to predict the advertising budget.

Rice. 7.9. Dynamics of seasonality of sales

Based on Fig. 7.9 two sentences can be distinguished:

A). In areas of revenue failure (1st and 3rd quarter of the year), it is necessary to carry out an advertising campaign in order to even out the seasonal sales wave. The advertising budget must be calculated from the projected peak profit of the upcoming seasonal sales wave.

IN). To exacerbate the seasonality wave of sales, it is necessary, within the framework of the company's available funds, at the border of 1 and 2, as well as 3 and 4 quarters (Fig. 10.8), to begin an intensive advertising campaign lasting until the period of maximum sales.

The disadvantage of the percentage of sales method is the possibility of violating the basic principle of marketing. The method is based on the fact that sales are the cause of advertising, and not the effect, which is completely wrong. Advertising activities should increase sales, and not be in terms of sales results. If advertising is automatically activated as a result of increased sales and falls as a result of falling sales, then all the conditions of advertising activity are ignored.

This method of calculating the advertising budget does not allow experiments with new types of advertising and interferes with long-term planning. Using this method, it is impossible to form an advertising budget taking into account the characteristics of each individual product and each individual sales territory. In addition, marketing, advertising science and practice require an increase in advertising costs with a decrease in sales. However, the method of calculating "as a percentage of the amount of sales" does not provide for this.

5. Competitive parity method. It provides for the amount of the advertising budget (R) at the level of the corresponding costs of competitors:

where Ri is the advertising budget of the i-th competitor ( , i.e. .: "Share in advertising media = Market share of the product in the mind of the buyer = Market share." The underlying assumption of a direct relationship between advertising spend and market share is wrong. The budget will not be calculated correctly until the competition in the market is correctly defined.

Two arguments are given in support of this method: the cost level of competitors represents the collective wisdom of the industry; Maintaining competitive parity helps to avoid competitive advertising competition, which is costly.

At the same time, they do not take into account: competitors can dictate your budget to you and force you to unjustified costs; competitors have their own strategies, you have your own and, accordingly, a different allocation; following competitors, one cannot become a market leader, etc.

6. The method of equity participation in the market. In industries where product similarity is high, there is usually a high ratio between market share and industry advertising share. Knowing this, some firms aim to achieve a certain market share and then set an appropriate advertising percentage of the budget. This method is based on the following proposal: other things being equal, the distribution of the total market capacity between individual firms over time becomes proportional to the shares of these firms in the total advertising costs. Then the advertising budget i-th firm is defined as

Where di– market share i th firm; Rj- advertising budget j th competitor firm.

In general, in order for a firm to maintain its market share, it is necessary to maintain a share of participation in advertising at a level exceeding the market share. According to Peckham's formula, when a new brand of product is introduced, the advertising budget should exceed 1.5 times the market share expected in two years. For example, if a firm owns 10 percent of the market, then it should spend 15 percent of industry advertising on advertising.

7. Technical budget method. This method is based on the analysis of the profitability threshold of advertising costs.

Q = S/(P - C),

where Q - additional sales volume; S - advertising costs; P is the price of a unit of goods; C - costs (usually variable costs) per unit of goods; (P - C) - marginal profit per unit of goods. Required additional revenue = S/((P-C)/P).

With this method, you can evaluate the level of effectiveness of advertising in order to obtain the desired value of sales growth. It can be judged whether the budget under consideration does not imply unrealistic estimates of the share of the existing market. Here, advertising is seen as an investment, not just a fixed cost.

W \u003d t * U * Wk / Uk,

For example. Let's determine the advertising budget for Pepsi Co. if it wants to have a market share of 30%. The share of advertising costs in the sales volume is: for Coca Cola - 1.25, for Pepsi Cola - 1.66. The market share of Coca Cola is 23%, the advertising budget of the Coca Cola Company is 28178149 USD. W = 1.25/1.66 x 30% x 28178149/23%=$48809454.

9. Method goals and objectives. This is the most scientific method used by large advertisers. It analyzes the current situation, sets goals, identifies promotional tasks, calculates how much it will cost, and calculates the overall budget. Increasing the advertising budget enables the company: at the prevailing price to sell more; sell a given volume of products at a higher price; sell more volume at a higher price (Figure 7.10).

Due to the increase in the advertising budget (W), the demand function shifts upwards to the right. The shift in the demand function due to advertising is greater the more the advertising budget increases. It is known that for each demand function there is the most profitable combination of price, product (P) and its quantity (Q). If the demand function shifts, then the maximum profitable ratio of the considered parameters also changes.

However, the maximum profitable sales volume of each subsequent value, located to the right of the achieved sales function, can only be realized with an advertising budget that increases in a larger proportion. It will be more difficult to win one additional buyer, the more there are already. The criterion for the optimality of the advertising budget in this case is the maximum value of net profit, that is, the excess of gross profit over advertising costs.

In a formalized linear form, the method for determining the volume of the advertising budget, taking into account the goals and objectives, is as follows:

,

Where p- the cost of one so-called rating unit; n 0- the number of rating units required for conditionally 100% coverage of the target audience; S is the desired level of sales volume; Smax - the maximum level of sales (conditionally 100% coverage of the target audience).

,

Where p– cost of one rating unit; n 0- the number of rating units required for conditionally 100% coverage of the target audience; Nmax- the number of potential customers of the advertiser; N- the number of customers who will become regular customers of this company; k- the ratio of the number of customers of a given firm who have become regular to the number of customers who will try the product of this firm; k 0- the ratio of the number of customers who try the product of this company to the number of those who saw the advertisement of this company.

It is easy to see that - is the number of customers who have tried the product of this company, and - is the number of potential customers who saw the advertisement of this company.

10. Independent Average Forecast (NUP/5B). It is based on expert assessments of the firm's management. Depending on the goals of the advertising campaign, 5-10 experts, based on experience, build independent forecasts for the advertising budget. Each expert should build his own forecast independently of others, without discussing it with colleagues. The forecast budget is determined as the arithmetic mean of the experts' data, taking into account their weighting significance. But the best is median all independent estimates. ( Median- the value of the varying forecast attributable to the middle of the ranged population. Within the forecast interval, the median is calculated using the formula:

M e \u003d X m H + d i (0.5N - F i -1) / f i ,

Where X m H - the lower limit of the median interval; d i- the value of the partitioning interval; F i-1- accumulated interval frequency; N- number of expert assessments; fi, is the frequency of the median interval.) From the point of view of statistics, such averaging gives acceptable results and does not depend on extreme estimates.

11. Dorfman-Stayman method. According to the Dorfman-Stayman rule, the ratio of advertising budget to total sales is equal to the ratio of advertising elasticity of demand to price elasticity of demand. Thus, this method relies on three indicators - the total sales of the company, the price elasticity of demand and the elasticity of demand for advertising. With these indicators, you can calculate the amount of the advertising budget:

R \u003d P E r / E c.

12. Method for modeling the relationship between the level of communication and consumer behavior. The initial premise of this method is the assumption that in order to achieve the planned sales volume, it is necessary to have a sufficient number of consumers, each of whom must buy a certain number of commodity units at the appropriate price per piece. To do this, it is necessary to achieve a certain level of awareness, motivation for a trial purchase and maintain the intensity of purchases during the first year after the product enters the market. Quantitative ratios between audiences at the indicated stages of readiness to purchase are determined as a result of advertising research. Having determined them, they calculate the required degree of coverage and frequency of exposure, develop a plan for the use of advertising media. After that, you can determine the estimated amount of advertising costs.

The advantage of the method is the objective validity of costs, their linkage with the set communication goals. Disadvantages: complexity, labor intensity, high cost.

13. Payment plan. He views advertising as an investment. It is assumed that it is possible to pass several years before the company covers the initial costs and starts to make a profit. Using advertising as an investment, you can quickly reach the required level of return on sales.

14. Advertising budget for an established brand- one of the most common situations. As methods for determining the advertising budget for a brand, test advertising, statistical forecasting and a purely practical method, the Schroer method, are used.

- Dough V A I am advertising. In this case, several similar markets are selected and each of them is allocated a different amount of advertising funds. How much depends on the experimental values ​​of the total budget, which can be more or less than the corresponding indicator of the previous year. The sales results in each of the test markets are then compared. The level of costs that, depending on the goals of the company, gives the greatest sales volume or the greatest profit, is used as the advertising budget of the entire market.

If test budgets are distributed randomly across markets, then we can assume that all other factors are averaged. This means that advertising will be the determining factor. Even if the budgets are not entirely randomly allocated, discrepancies in other factors can be eliminated statistically after the results are obtained (for example, using analysis of covariance).

- Statistical forecasting. W advertising spending and sales volume are compared over time (preferably monthly, quarterly or yearly to identify short and long term effects). To calculate the relationship between them, statistical tools are used (usually regression analysis). Based on the revealed dependence and the sales plan for the future period, the amount of the advertising budget is determined. In statistical forecasting, the influence of all other factors is taken into account mathematically, and not experimentally.

The quality of ad spend. The size of the advertising budget does not fully determine the effectiveness of the marketing policy. Spending the budget should coincide with the correct choice of the target audience, advertising media and channels, advertising delivery methods, etc. On fig. 7.13 shows the dependence of sales volume depending on the quality of the advertising campaign.

Optimization of the advertising budget allows companies to stay stable in their market. European experience shows that with advertising costs up to 0.5 million dollars. the growth of fame is linear depending on the level of costs. With an increase in costs over 1 million dollars. fame grows faster: for each additional unit of cost, a higher level of fame is achieved than at the initial stage. In this case, fame is fixed in a certain period of time and includes recall (content attractiveness of advertising, potential availability for purchase, experience of real purchases).

All firms or companies use different methods of budgeting an advertising campaign and develop their own cost distribution schedules for an advertising campaign.

Similar information.

After the image of the campaign is determined - its image, the goals and objectives of the advertising campaign are determined, the proposed sources are selected

distribution, the most "difficult" issue of the entire advertising campaign arises - determining the budget for advertising. The composition of the costs for these activities is determined mainly by 2 options:

• -Based on the goals of the advertising campaign;
• -Based on allocated/available funds.

Objective factors:

Gross profit of the firm;

The curve of dependence of sales on the volume of advertising costs

It must be remembered here that this dependence is difficult to track in the short term, since advertising works primarily on consumer awareness of the product/service.

Subjective:

In practice, very often the advertising budget largely depends on the skill of the advertising manager when discussing an advertising campaign with the company's management. Both the management and the advertising manager may have different views on the company's advertising, but the final decision always remains with the first persons. However, the degree of influence of the manager can be different and decisions can be made also different.

Management often makes the final decision not on the basis of the above scheme, but on the basis of the general situation in which the campaign is located.

Personal opinion of the manager who decides on the financing of the company's advertising.

In case of approval of a sufficient amount of the advertising budget for the advertising campaign (i.e., according to the target option based on the set

goals and the means necessary to achieve them) it is necessary to adhere to the following rule: "The size and distribution of the advertising budget should ensure not only the coverage of advertising costs through sales, but also the receipt of maximum income." It is difficult to follow this rule, but it is possible with a competent and professional approach. At the same time, the indicators of the previous year, or a comparative assessment of the budgets of competitors, are taken as the basis for determining the advertising budget. There are other methods as well.

In the case when the advertising budget is formed on a residual basis, then there are no rules for the formation of the budget, since initially advertising activity for the organization is not a condition for successful activity in the market. This is possible in 2 cases:

• -It's just the management's opinion,
• - Demand for the company's products is not elastic, it is constant and does not require its increase.

There are several main methods for determining the volume of advertising budgets: the method "from the availability of funds", "% of sales", the method of "market share", "competitive parity", "budget by clothes", the method "based on the goals and objectives of the advertising campaign " and others. Method "from the availability of funds"

Development of an advertising budget for the promotion of products / services based on the opinion of the organization's management regarding the level of advertising costs. This method completely ignores the impact of costs on sales volume - costs can be both excessive and unreasonably small.

Method "% of sales"

Advertising costs are defined as a percentage of current or planned sales (eg 2%). There are 2 points of view on this method. First, this method gives management a stable indicator of advertising costs and no more. The size of the advertising budget is not justified by anything, except for the traditions of the campaign, therefore, it is meaningless to consider the effectiveness of more or less investment in advertising campaigns.

The second point of view on this method makes the campaign management think about the relationship between advertising costs, sales price and profit per 1 unit of product / service. The downside is that sales volume is seen as a cause rather than a consequence of product promotion. It is also difficult to determine the value of the percentage. Typically, the percentage allocated to advertising is based on the industry average or the experience of the campaign or manager. However, even in the same industry, the amounts allocated for the promotion of products can be different, since organizations differ in their capabilities, sizes and goals.

Thus, this method has its pros and cons.

"Equity method":

It is based on the fact that in industries where there is a lot of similarity between goods / services, there is usually a clear relationship between market share and equity participation in industry promotion of products. Based on this, some organizations are guided by the achievement of a certain indicator of market share, and then a certain percentage of costs is set just above this share for the promotion of products / services.

For example, an organization has a 10% market share, then it must invest in product promotion 12% of industry investments in promotion. This method, if used by all market participants for a particular product, can lead to an increase in advertising costs in the overall cost structure due to competition in the market. Ultimately, both the organizations involved in such a struggle and consumers who are forced to pay additional costs for advertising campaigns will suffer the bill. The price of victory will be unreasonably high.

"Competitive parity method"

The volume of the advertising budget is set at the level of competitors, often at the average industry costs (as a % of sales). The same numbers give advertising managers a sense of security. It is assumed that competitors' advertising budgets are based on the collective wisdom of the industry and that this approach discourages advertising wars. However, a mistake was initially made here, because, as mentioned above, campaigns are different both in size, capabilities, and in goals, objectives and specifics of activity. Here it is necessary to remember that the "leading campaigns" in the industry with high profits must spend more on advertising than other competitors.

"Clothing Budget"

Method "based on goals and objectives"

When forming the volume of the advertising budget, the campaign management is faced with the question of which method of the above to use in order to avoid unreasonable costs and increase the cost of production. The "goals and objectives" method solves this issue in the most optimal way, as it includes the definition of production / planned indicators of sales volume, profit and the development of communication policy and advertising campaign goals (product awareness, purchase intention, etc.) necessary to achieve target sales. After setting goals, the reach and frequency of advertising hits are determined. The cost of an advertising campaign with a given coverage and frequency of broadcasts is determined.

The advantage of this method is that advertising managers formulate advertising campaign goals and recognize the relationship between product awareness, trial purchase and subsequent regular purchases and the relationship of these intermediate goals with the effectiveness of investments in the advertising activities of the company.

There are also other methods of forming an advertising budget, which can also be used when developing them and planning an advertising campaign as a whole.

"empirical method"

Determining the cost of an advertising company experimentally. After a series of tests in different markets with different advertising budgets, the optimal volume is determined. However, with this method of budgeting, it is difficult to identify the final results of the impact of promotion methods and promotional activities in particular.

Method of "peer review"

The technique of using the estimates of managers who are directly involved in the formation of the response curve It assumes that managers estimate the level of sales without an advertising campaign and during it, 2 times less than the current advertising campaign and 50% more. The calculation of the overall score allows you to determine the optimal amount of advertising spending.

This method can be effective if the managers involved in the survey are professional and competent.

After determining the amount of costs for the advertising campaign and approval by its management of the company, further planning of promotional activities proceeds to the stage of distributing funds in the direction of the advertising campaign. Directions for the use of allocated funds can be approved along with the amount of advertising costs in general (for example, in shares, %).

Priorities in this matter will be given to those means of advertising messages that can provide the greatest coverage and consumers in general or the target group, the frequency of contact with them. The success of an advertising campaign is determined precisely by these factors - with how many people, with what frequency contacts are established and with which target groups.

Ensuring as many contacts as possible is an important but not sufficient goal. In the process of contacting consumers, an advertising message should:

• - Draw attention to the product;
• - Arouse interest in him;
• - Inspire trust and desire to purchase a product for trial;
• - Encourage them to buy it.
• - The study of the object of advertising.

The company must clearly understand its object of advertising. The difference between advertising a product and advertising a company is what is the object of the advertising message. The company is engaged, as a rule, both in the advertising of individual products and in the advertising of the company as a whole. In the first case, the special qualities of the product are singled out, in the second, through indications, for example, of the size of the enterprise and its global connections, an attempt is made to gain the confidence of buyers for the entire production program of the enterprise. You need to know and be able to highlight the uniqueness of your product or service. At the same time, for a systematic advertising activity related to the general policy and strategy of the enterprise, voluminous market and internal information is required, in particular:

• -about the degree of market saturation;
• - about the stage of the product life cycle;
• - on the activities of competitors;
• - about the characteristics of the target group;
• -about the availability and cost of advertising media;

The aspect of competition is very important. On the one hand, competitors pose some obstacles and create some problems. On the other hand, in a market economy, competitors contribute to the struggle for the quality of a product or service and are a kind of incentive for work.

So, the firm should build its advertising policy on the ability to somehow stand out among competitors in the general market (if any), providing consumers with a unique type of service or emphasizing in every possible way the high qualification of its employees, the specific properties of the product, the advantage of the product or service over other firms. It is important to find what the consumer is most sensitive to.

It is necessary to pay great attention to the choice of media when placing advertisements. In advance, you need to conduct a marketing study of which radio stations are the most listened to by people included in the segment of potential consumers of the Znayka DRC. The selection of prizes was also carried out on the basis of the alleged priority choice of potential consumers of a particular group of goods.

Table 3.3.- Choice of means of advertising distribution

To achieve the greatest efficiency from an advertising campaign, I believe that in this situation it is advisable to use various media, but some to a greater extent, some to a lesser extent.

A television. At present, it is unbearable for the DRC "Znayka" to spend a large amount of money on the purchase of television seats, on advertising platforms for various television channels.

The weather forecast is a popular program on local television, most viewers watch the program to find out the weather for the coming day. The frequency of exits is more than three times a day daily. During the program, the presenter will introduce viewers to the sponsor of the show and convey the necessary information to the audience.

1) "Prioskolie" - information channel of the cable provider. Every hour weather forecast and advertisements. It is there that it is planned to place information about the Znayka center.

The audience is more than 500 thousand people, people from 30 years old and more.

2) Radio. Radio is a popular means of communication among manufacturers and is less expensive than television. A wide range of offers, as well as age orientation, allows the advertiser to choose the right radio station with optimal working conditions.

Based on the data provided by the radio stations, according to my work, I selected the most suitable:

"Europe +"

Broadcasting frequency - 106.0 FM;

Audience - people from eighteen to forty-five years old;

Website - www.evropaplus.ru

The audience is about 750,000 people.

When choosing radio stations, I was guided by the frequency of broadcasting, audience coverage, social factors and coverage area. In this selection, there are radio stations with a frequency of FM and VHF, all listeners are over the age of eighteen and mostly working people, there is a fairly large coverage area. FM radio is mainly aimed at listeners who have a car, who listen to information while driving in their car.

• 3) Press. To provide full information about the conditions of the action, it is necessary to place thematic articles in periodicals.
• 1) Newspaper "Dawns"

Black and white edition on four A3 pages, socio-political edition. Comes out on Tuesdays and Saturdays. The main distribution is a subscription. The newspaper is read by people who are interested in the events in the city, and this newspaper is also the official source of information of the City Administration.

2) Newspaper "Oskolsky courier"

Two-colour edition on twelve A3 pages. It is published on Fridays with a circulation of up to one hundred and thirty-eight thousand copies. When choosing, you must first be guided by the circulation. The number of copies produced can tell the advertiser how likely it is to reach the target audience. Secondly, the popularity of newspapers among the population was considered.

The circulation and popularity of these newspapers meet the requirements, so the choice is optimal.

The average cost of one publication in a newspaper, using the example of Oskolsky Krai, is eight hundred rubles.

The famous phrase of the American entrepreneur of the beginning of the last century, John Wanamaker, that he knows that he spends half of his money on advertising wasted, but does not know which half, has not lost its relevance in our days. Almost all companies face the problem definitions optimal advertising budget and practically no one can determine this magic number - budget, which would allow you to get a 100% return on advertising. Any deviation from optimality leads to inefficiency: with less company budget receives less profit from sales (since not all consumers are aware of the product), with more company budget simply throws away part of the funds to the wind (since all consumers are aware and additional advertising not required). However, the first situation, when due to insufficient level advertising company may suffer significant losses, is more serious than the second - when company spending money on advertising. In favor of a higher level of spending is also the fact that the goal advertising is not only informing consumers, but also reminding and persuading. However, in this case, the main question is about the optimal level budget- remains open. Many professionals in the calculation advertising budget rely on their own experience, common sense and simple interdependencies. Recently, more sophisticated calculation methods have appeared. advertising budget, but their evaluation and application should not be divorced from practice. The following describes methods determination of advertising costs on the basis of established practice and several theoretical methods that deserve the attention of all those involved in solving this difficult task.

Fixed budget method

The company sets a certain level of advertising expenses, and these expenses remain constant from year to year despite any changes in the internal and external environment of the company.

Residual method

Fortunately, the two methods of determining the advertising budget described above are not often encountered due to their obvious inefficiency and inability to reflect the changes that are constantly taking place both in the internal and external environment of the company. According to Krueger, such methods are typical for small companies whose management "does not believe" in advertising.

Define a budget based on a certain percentage of sales

Defining the budget as a certain percentage of sales is a more advanced method. Typically, the advertising budget is between 1.5% and 3% of total sales for industrial products and between 15% and 30% of total sales for consumer products. The company can set a certain percentage of both last year's sales and next year's sales forecast. In the latter case, the accuracy of the forecast is important. Advertising/total sales is a numeric expression of the ratio of two variables (because both total sales and the percentage a company sets can change). Keeping the same percentage constant assumes that the company has found the optimal ratio between the sum of advertising costs and total sales, according to the company.

One of the options for this method is the establishment of advertising costs per unit. This is a common practice used by manufacturers of cars, beer and cigarettes. In this case, advertising/total sales is expressed in dollars per car, TV, unit, and so on. When calculated on the basis of the number of units produced, the advertising budget can be adjusted more quickly depending on sales and production fluctuations.

Determination of the budget based on a certain percentage of sales taken from competitors

The company evaluates in monetary terms the advertising activity of competitors and their total sales. Then the percentage of sales that competitors send to advertising is calculated. As a result, in the final determination of its advertising budget, the company focuses on this percentage (using its own sales volume).

Some areas of business have developed their own specific indicators of advertising costs in relation to sales. And although there are no guarantees that these indicators are optimal here either, many companies try to stick to them for strategic reasons - to keep up with competitors.

Despite the fact that these two methods described above are far from perfect, they are used to calculate advertising costs in most companies. The problem of determining the advertising budget here is solved on the basis of accepted practice, own experience and general logical assumptions. It should be noted that when calculating advertising budgets in this way, it is necessary to provide for a reserve fund that can be used to “pay off” unaccounted for changes in the external environment of the company. For example, due to the growth in the cost of advertising media in recent years, advertisers have to dramatically increase their advertising budgets just to keep the amount of purchased space and time at the same level (that is, to achieve the planned level of advertising).

When determining the advertising budget, a company estimates the share of the product market it occupies, estimates the total size of the advertising market, and then calculates the budget needed to cover the same percentage of the advertising market that the company occupies in the product market. Simply put, if the company's share in the product market is 15%, then its advertising should occupy the same 15% of the advertising market (advertising market in this situation refers to advertising of the same type of goods placed by the company and all its competitors).

This method is based on the assumption of a linear relationship between advertising spending and the company's product market share (see Figure 1).

To link their own advertising costs, competitors' advertising costs and total sales in a single indicator, they use the value of advertising costs per unit market share. Obviously, an aggressive competitor will try to spend a little more money on advertising in order to increase its market share. If, for example, a company plans to increase its market share by 5%, and the generally accepted cost per 1% share is $500,000 on average, the company's advertising budget would need to increase by $2.5 million. Due to the fact that the total volume of the advertising market varies depending on the size of the advertising budgets of competing companies and the number of competitors, the budget determined by this method needs to be constantly adjusted. As the total advertising market increases, the company must increase its budget in order to maintain its planned share. A decrease in the total volume of the advertising market automatically leads to an increase in the share that the company occupies in the advertising market (which is also not always good).

In fact, this is a somewhat complicated calculation of the same advertising market share that a company needs to achieve. True, this method is based on a slightly different assumption: that large companies receive some advantages due to the law of economies of scale ( economies of scale) - while maintaining efficiency, advertising costs are reduced (see Fig. 1).

To construct an advertising intensity curve, the values ​​of the product market shares owned by companies are plotted on one axis, and the corresponding values ​​of the advertising market shares of these companies are plotted on the other axis. Thus, each company appears on the graph as a point. When you combine them, you get an advertising intensity curve, showing that the larger the company, the smaller the percentage of sales it spends on advertising. Or, in other words, the increase in advertising spending lags behind the increase in the company's product market share (of course, this occurs after the company reaches a certain product market share).

The company sets specific goals and determines the budget required to achieve these goals through an advertising campaign. Unlike all the methods described above, this one differs in the order of actions - first the goals are determined, and then the budget. In principle, this is an ideal order, but in practice this method is not common. First, most companies are limited in financial resources. Secondly, this method also does not guarantee the optimality of the budget. On the contrary, in order to achieve advertising goals, performers will try to play it safe and increase the budget as much as possible, systematically exceeding the optimal level.

Dorfman-Stayman method

According to the Dorfman-Stayman rule, the ratio of the advertising budget to total sales is equal to the ratio of the advertising elasticity of demand to the price elasticity of demand. Thus, this method relies on three indicators - the total sales of the company, the price elasticity of demand and the elasticity of demand for advertising. With these indicators, you can calculate the amount of the advertising budget:

R / P \u003d E r / E c,

P = P× E r / E c.

According to McMeekin with this calculation, the advertising and pricing strategies of the company are synchronized. The complexity of the method lies in the fact that it is necessary to correctly determine the two indicators of elasticity, which always causes difficulties.

In the most general case, the elasticity of demand for any indicator is the coefficient of change in total sales when the indicator changes by one percent (while all other indicators remain constant). If the elasticity is less than one, then a change in the indicator by one percent leads to a change in total sales by less than one percent (inelastic demand). If the elasticity is greater than one, then a change in the indicator by one percent leads to a change in total sales by more than one percent (elastic demand). Price elasticity of demand is calculated using the following formula:

K = (∆q/q)/(∆R/R),

Where q- the total sales volume of the product before the price change;

∆q- the change in total sales of a product after a price change;

R- the price of the goods before its change;

∆R- change in the price of goods.

K = (∆q/q)/(∆R/R),

Usually, the company is able to calculate the price elasticity of demand itself. But the elasticity of demand for advertising is quite difficult to determine, so this indicator is best taken from marketing research. Lambin As a result of studies of numerous European brands, he determined the value of the elasticity of demand for advertising at 0.1. In a review of the early 1980s by Leone et al. , the values ​​of elasticity of demand for advertising range from 0.003 to 0.482, most of them are less than 0.2. Seturman And Tellis and later researchers also confirm that the elasticity of demand for advertising does not go beyond 0.1-0.2.

One of the limitations of this method is that it is applicable only to products with price elastic demand.

The travel company that sells the tours has determined the following parameters:

• the cost of one ticket = 500 dollars;
• sales forecast = 200 tours (or 100 thousand dollars);
• price elasticity of demand = -2;
• elasticity of demand for advertising = 0.1.

Substituting this data into the formula, we get the optimal advertising budget = $5,000.

When the price changes, the advertising budget is recalculated in several stages. Suppose, for example, that the company reduced the cost of vouchers by 10%, that is, to $450. Such a decrease in price will lead to an increase in the sales forecast by 20%, that is, up to 240 vouchers (or 240 × 450 = 108 thousand dollars). Substituting the new data into the formula, we get a new advertising budget = 5.4 thousand dollars. However, this will only be an intermediate figure, because the increase in advertising costs by itself will increase the sales forecast by 0.8% (or about 2 × 450 = $900). Thus, the total sales forecast will be 108.9 thousand dollars, and therefore the advertising budget will increase to 5.45 thousand dollars. Due to the insignificance of the amounts, you can stop at the last advertising budget and not adjust it further. However, with larger amounts, the "adjustment" of the advertising budget will have to be carried out as many times as necessary (until the amounts become insignificant).

Danaher-Roost method

Danaher And Rust consider advertising as an investment and offer a formula for calculating the advertising budget that will allow you to get the maximum return on investment in advertising.

To determine the optimal level of advertising spending, you first need to set a clear financial goal. Consider three such possible goals. The first of these is maximizing the profitability of advertising spending (profitability is defined as the additional profit generated solely by advertising, minus advertising costs). The financial goal can also be to maximize the return on advertising investment (defined as a percentage as the ratio of advertising spend to the amount of return on investment in advertising). Another goal may be to maximize advertising effectiveness (effectiveness is defined as the ratio of the effect obtained as a result of advertising to advertising costs).

Now let's look at these goals one by one.

Let's assume that we have the ability to accurately measure advertising effectiveness, which can be (at least in principle) directly related to revenue. Then you can derive the formula for the profitability of advertising costs:

E(1) = kf - c,

One of the main problems in this formula is the unknown coefficient k.

E(2) = kf/c,

C. Maximizing the return on advertising investment

This criterion is most preferred by financiers, who are accustomed to evaluating any project based on the return/benefit comparison of these projects.

In principle, the idea of ​​equating advertising spending with investment is not new. Back in 1976, vice president of an American advertising agency JWT Nariman Dhalla wrote that in order to improve business results, managers must treat advertising as a capital investment.

E(3) = (kf - c)/c = kf/c - 1 = E(2)- 1,

As in the two previous formulas, this one also has a coefficient To, which is extremely difficult to determine. However, in this case, it can be ignored. It can be seen from the formula that as the value increases f/c increases in importance as E(2), and E(3). From this we can conclude that maximizing advertising effectiveness and maximizing the return on investment in advertising are essentially the same thing. Moreover, the ratio f/c, which is to be maximized, does not contain a hard-to-determine coefficient To. From this it turns out that in practice it is quite possible to calculate both the advertising effectiveness and the return on investment in advertising. And this, in turn, makes it possible to derive a formula for determining the optimal level of advertising spending.

Derivation of a formula for calculating the optimal level of advertising costs

In order to fill the above calculations with concrete content, let us take as an example the planning of an advertising campaign on television. Such planning in world (including Russian) practice is carried out with the help of the so-called total rating units of television programs - Gross Rating Points(hereinafter - GRPs). GRPs - this is the sum of all the ratings that the TV programs (and, consequently, the specific advertisements placed in them) had during the reporting period. Ratings are usually calculated for regular broadcasts. The rating of a TV show actually reflects the relative reach (or size) of the audience. If, for example, this TV show was watched by 10% of viewers (out of the total number of all TV viewers in this period), then the rating of such a program is 10. When advertising is placed in different TV shows, or in the same one, but several times, the ratings of TV shows are added up and thus GRPs are obtained. To determine the optimal level of advertising spending, you must first find out how the cost of purchasing a certain number of GRPs correlates with the effectiveness of GRPs.

Cost of GRPs

On fig. 2 shows a typical cost curve. This curve reflects two main assumptions that have long been tested in practice. First, the more GRPs purchased, the greater the total purchase cost. Obviously, the higher the rating of programs and the greater the number of programs in which the advertiser intends to place advertising, the greater the advertising costs. And secondly, the more GRPs purchased, the lower the cost of each GRP unit (due to discounts) 1 .

Rice. 2. GRP Cost Curve

Such a function is described by the following formula:

C(g) = c x g d, (1)

Where g- number of purchased GRPs;

C(g)- cost of purchasing GRPs in quantity g;

With- the cost of purchasing one unit of GRP;

d- coefficient reflecting the amount of discounts when buying GRPs in quantity g.

Values d range from 0 to 1. The smaller the discount, the d closer to unity. At d, equal to one, there are no discounts at all.

Efficiency of GRPs

Advertising campaigners often hope that the more GRPs that are generated during an advertising campaign, the greater the impact of that campaign. The effect here can be understood as reaching the audience, increasing sales, etc.

The curve in fig. 3 links number of GRPs - g and efficiency - f(g). It is based on several assumptions. First, there is a minimum level of GRPs - g(min), which must be purchased in order for the advertising campaign to have at least some effect. Second, a further increase in the number of GRPs leads to an increase in efficiency. Third - after the saturation level, the effectiveness of GRPs obeys the law of diminishing returns. (diminishing returns)- with the purchase of each next rating, the return on it (efficiency) decreases compared to the purchase of the previous rating (this dependence is reflected by the coefficient b).

Rice. 3. Dependence of advertising effectiveness on GRP

This function is described by the following formula:

f(g) = f(max) - a x g(–b) For g > g(min),

At the minimum level of GRPs, we obtain the following formula:

f(gmin) = f(max) - a× g(min) (-b) .

From it you can get the value of the coefficient A:

a = [f(max) - f(gmin)] × g(min) b .

Thus, the effectiveness of GRPs in the amount g can be expressed as follows:

f(g) = f(max) - [f(max) - f(gmin)] × (g/gmin) (-b) .(2)

On fig. 4 shows the advertising efficiency curve (or advertising return on investment) built on the basis of the cost curve and the efficiency curve of GRPs, formulas 1 and 2, respectively. All the results of the calculations, as well as the assumptions that were made before the calculations and which do not contradict each other, show that the optimal level of advertising costs does exist. From the obtained formulas, using the simplest differential calculations, you can find an equation for determining the optimal number of GRPs:

g(opt) = g(min)× [ ((f(max) - f(gmin))/f(max))× (d+b)/d)]1/b. (3)

Rice. 4. Advertising efficiency curve

The optimal number of GRPs maximizes both advertising effectiveness and advertising return on investment.

Knowing the optimal number of GRPs, you can find the cost of buying GRPs g(opt) - c(g opt). It is this cost that will equal the optimal cost of conducting (the optimal budget) a certain advertising campaign.

In order to use formula (3), it is necessary to know all five of its constituent elements. Two of them are found empirically.

Any experienced media planning expert will be able to more or less accurately determine the minimum number of GRPs, after which a rapid increase in the effectiveness of an advertising campaign begins - g(min). The same can be done with the help of computer programs used in media planning. Having determined the value of the minimum number of GRPs, you can immediately determine the efficiency obtained by purchasing GRPs in the amount g(min) - f(gmin).

The third component of the formula - the maximum possible efficiency in the absence of restrictions on advertising costs - f(max) equals 1, since any efficiency cannot be more than 100% (that is, you cannot reach more than 100% of the audience, you cannot win more than 100% of the market, and so on).

The next two elements of the formula are coefficients d And b- derived from formulas (1) and (2):

d = ln[B/c(gmin)]/ln[g(B)/gmin] (4)

b = -ln[(f(max) - f(gB)/(f(max) - f(gmin)]/ln[g(B)/g(min)], (5)

Thus, we have obtained a semi-empirical formula for calculating the optimal number of GRPs, the knowledge of which is necessary to calculate the optimal advertising budget.

In order to check how the resulting formula works, consider the following example from the New Zealand practice of media planning.

Let's say the budget for a television advertising campaign is $100,000. As an indicator of effectiveness, we take the reach of the audience (Reach). It is known from experience that buying less than 100 GRPs has almost no effect (i.e. advertising in the same TV show so many times that the GRPs does not exceed 100, or advertising in several TV shows with a total GRPs not exceeding 100, or placing advertisements in several TV shows several times, so the total total GRPs again does not exceed 100). The target audience of the advertising campaign is women aged 25 to 49. From data collected by the company AGB McNair New Zealand Ltd. in June 1995, it follows that with the purchase of 100 GRPs, the coverage of our target audience was 15.75%. The purchase price for 100 GRPs was $49,800. When placing ads, discounts were provided (60 seconds cost 1.8 times more than 30 seconds, not 2 times). So buying 200 GRPs would cost $49,800 x 1.8 = $89,640.

Using formula 1, we obtain two equations:

1.8 x 49800 = WITH× 200 d;

49 800 = WITH× 100 d.

Hence the coefficient d equals:

d = ln 1,8/ln 2 = 0,848.

Now, from formula (1), you can get the cost of one GRP unit:

WITH= 49,800 × 100 (-0.848) = $1,002.8

Therefore, $100,000 allocated to a television advertising campaign can buy 228 GRPs:

g(B)= (100,000/1002.8) (1/0.848) = 228 GRPs.

With the purchase of this number of GRPs, our target audience coverage will be 47.86% (according to AGB McNair New Zealand Ltd.).

Now let's calculate the coefficient b:

b = -ln[(1 - 0,4786)/(1 - 0,1575)]/ln = 0,5822.

Thus, all the components of formula (3) have been determined, and now it is possible to calculate the optimal number of GRPs:

g(opt)= 100 × [((1 - 0.1575)/1) × ((0.848 + 0.5822)/0.848)] (1/0.5822) = 183 GRPs.

The optimal number of GRPs turned out to be lower than the number of GRPs that can be bought by spending the entire budget (228 GRPs).

These calculations show that the maximum return on advertising investment is possible with lower GRPs and therefore advertising should not be spent on the entire allocated budget.

Substituting all the data into formula (1), we obtain the optimal level of advertising costs:

c(gopt)= 1002.8 × 18300.848 = $83,182

And the efficiency or in this case the coverage of the target audience when buying 183 GRPs is 40.73%:

f(gopt)= 1 - (1 - 0.1575) × (183/100) (-0.5822) = 0.4073.

Thus, by spending $17,000 less, we get more efficiency. The efficiency, defined in our case as the ratio of audience coverage to the cost of advertising, at the optimal level of advertising costs is 2.3 times higher than the efficiency when spending the entire advertising budget.

In the process of calculations, it also turned out that when determining the minimum number of GRPs - g(min) rather large errors can be allowed, and in this case, the optimal number of GRPs will still be determined more or less accurately. When substituting other values ​​into the formula for determining the optimal number of GRPs g(min) the following picture emerged.

For values g(min) 75 to 125 difference of corresponding values g(opt) was 28 GRPs, with values g(min) 90 to 110 difference of corresponding values g(opt) was only 9 GRPs. From this it can be concluded that g(opt) not too sensitive to some fluctuations g(min). This circumstance allows media planning experts not to worry too much about a not entirely accurate definition. g(min).

Conclusion

As practice shows, the problem of determining the optimal advertising budget does not have an absolute solution. However, this does not mean that companies do not have any benchmarks in this area. In each case, technical calculations should be preceded by a thorough analysis of the situation and existing methods for determining the advertising budget. Finding suitable methods and "tuning" them to a specific situation can prevent large financial losses and significantly increase the effectiveness of an advertising campaign.

Literature

1. Danaher, Peter J. and Roland T. Rust. Determining the Optimal Level of Media Spending, Journal of Advertising Research, January/February 1995.
2. Danaher, Peter J. Optimizing Response Functions of Media Exposure Distributions, Journal of the Operational Research Society, July 1991.
3. Kaplan, Robert S. Discount Effects on Media Plan // Journal of Advertising Research. Vol.11. - No.3. - 1971.
4. Krueger, Joseph. Developing a Marketing Budget, Target Marketing, October 1996.
5. Lynch, James and Graham J. Hooley. Increasing Sophistication in Advertising Budget Setting, Journal of Advertising Research, February/March 1990.
6. McMeekin, Gordon. How to Set Up an Advertising Budget, The Journal of Business Forecasting, Winter 1988-1989.
7. Mitchell, Lionel A. An Examination of Methods of Setting Advertising Budgets: Practice and Literature // European Journal of Marketing. - Vol. 27. - No. 5. - 1993.
8. Turner, Augustine. Cost-Effective Advertising, Marketing, May 1989.

1 In Russian and world practice, it is possible to purchase not a certain amount of time in certain programs (which is called a fixed advertising placement system), but a certain number of GRPs (which is called a “floating” advertising placement system). The "floating" system allows you to protect advertisers from unexpected drops in the rating of certain programs in which advertising is placed. Because the floating system buys GRPs, not time, airing as many commercials as needed to fill the purchased amount of GRPs. Therefore, in case of any unforeseen drop in the ratings of programs, the advertiser will get his own - due to additional commercials. With a fixed system, only a certain amount of time is bought in certain programs, and the number of GRPs collected is calculated after the fact.

Ad decision making is a five-step process consisting of setting goals, deciding on budget, circulation, and media, and then evaluating the results of the advertising program.

All companies that decide to invest in advertising, sooner or later face the problem of determining the optimal amount of money to spend on advertising. On the one hand, at a certain stage in the development of a company, advertising is indispensable, on the other hand, how to find the level of costs that will be most effective. The answer to this question requires a detailed analysis.

Currently, there are a number of techniques that allow, with some approximation, to solve this problem. However, each method has its own advantages and disadvantages. Along with the simplicity of the method, its low reliability comes forward; to improve the accuracy, additional information is often required, which is not available on the information services market. In addition, in all methods there is no connection between advertising and other elements of marketing. The existing problem is especially relevant for Russia. All methods can be conditionally divided into two groups: traditional and new. More advanced new methods (mathematical models and experimental formulas) make it possible to determine advertising costs with a high degree of accuracy. However, in the current market conditions in Russia, they are often overly complex in practical application due to market instability or lack of information. In this case, traditional methods come to the rescue.

Let's take a look at the advantages and disadvantages of the various methods.

Let us note several features of the currently existing methods for calculating the advertising budget.

1. Almost all methods are designed for large advertisers.

2. Practically none of the methods gives an answer to the question - for which media and in what quantity within these media should the advertising budget be distributed. That is, a priori it is believed that the main thing is “how much” to spend, and not how to distribute this “how much”.

And now more about each of these methods.

Easy to understand and easy to use. Unlike the two previous methods, the relationship between the volume of advertising costs and the volume of trade is recognized. At the same time, cause and effect in this case are reversed, the volume of advertising allocations is determined by the volume of sales, and not vice versa.

In these methods, not without reason, it is assumed that the increase in the turnover of the company is proportional to advertising injections.

k - prevailing in the market (or in the company itself) indicator of deductions for advertising relative to sales;

Suppose the company's sales volume is $500,000. The prevailing market indicator of the percentage deduction for advertising from turnover is 3%. Then the advertising budget will be 15 thousand dollars.

Perhaps the only advantage of this method is its simplicity. Otherwise, this method has not gone far from the principle of estimating the advertising budget, which is called “from the bulldozer”.

The size of the incentive budget is set at the level of the corresponding costs of competitors. There are two arguments in support of this method. One is that competitors' cost levels represent the collective wisdom of the industry. The second says that maintaining competitive parity helps to avoid intense stimulus competition. But even here none of the arguments has any real force. There is no reason to believe that competitors have a more sensible view of how much should be spent on incentives.

In this system, the advertising budget is chosen as a share of the advertising costs for the entire category. In jargon, this value is often also called the noise share, where noise refers to the total amount of advertising offered to the consumer.

This system allows you to set a competitive advertising budget; respond to changes in the competitive environment, such as new products entering the market. It brings realism to the expectation of the effect of advertising, for example, if you spend half as much on advertising as your nearest competitor, you can hardly expect the same market share as his. In addition, if PR campaigns are taken into account as noise, then we get an additional advantage.

However, the information you collect may not be accurate because it is not easy to obtain data that reflects your competitors' advertising spend. Competitors can dictate your budget to you and force you to unjustified expenses. The underlying assumption that there is a direct correlation between advertising spend share and market share is wrong. The budget will not be calculated correctly until the competition in the market is correctly defined. Judgment based on share of total advertising spend can be quite narrow in the face of current methods. At the same time, trying to take into account the effect of other elements of marketing is laborious and may not be cost effective.

These methods include the method of estimating the advertising budget, taking into account the practice of competing firms.

It should be noted that this method is unlikely to carry at least some semantic load. Assume that there are two main competing firms in the market. The former spends $20,000 on advertising, while the latter spends $100,000. It is easy to calculate that this method yields an advertising budget of $60,000, although it is clear that everything depends on the size of the firm. If this firm is comparable in size to the first firm, it is unlikely to be able to afford the estimated amount of the advertising budget without compromising working capital. If the firm is comparable to the second firm, then for successful competition it can and must spend more than the calculated amount on advertising.

You can also highlight the method of equity participation in the market. This method is based on determining the market share that the firm expects to occupy. In addition, in this method, it is not necessary to evaluate the advertising budgets of each competing firm, but it is enough to estimate the total volume of advertising injections for a given product, work or service.

In this case, the total volume of advertising injections for a given product is an external value for this company (ie, a certain one). This value can be estimated more or less accurately. However, it is much more important to correctly estimate the size of the market share that a given firm expects to occupy. It is from the assessment of this value that it depends how much the size of the advertising budget will be optimal. And since this method does not provide a way to estimate this quantity, the value of this method is very doubtful.

3. Calculation of the advertising budget for residual funds. The amount of the advertising budget is calculated based on the funds remaining after use for all other needs. Determined by the firm's short-term financial capacity after taking into account all other budgetary costs. This is the simplest method that does not take into account the real goals and objectives of the company, but rather shows the state of affairs in the absence of specific advertising objectives. The budget is cut when things go wrong; when there is money, it is spent.

This method, apparently, is one of the most unfortunate, as it reduces advertising policy to the level of a "stepdaughter", and it is absolutely unfair. Investing in advertising is no different from any other investment. The value of their profitability can be either higher or lower than these other (alternative) investments. Therefore, advertising costs should be considered on a par with other costs.

Firms budget for incentives a certain amount that they can afford to spend. This method of budgeting completely ignores the impact of incentives on sales. As a result, the size of the budget from year to year remains uncertain, which makes it difficult to plan ahead for market activities.

There are also the following methods: the method of budgeting based on its volume for the previous period. In this case, the budget is adjusted relative to the previous level in accordance with changing conditions (“from the fact”).

Then the researchers identify a method for determining the volume of the advertising budget, taking into account the goals and objectives.

The goals and objectives approach focuses on the goals to be achieved and the role that advertising should play in achieving this. This is a multifaceted process. When approached taking into account the goals and objectives, advertising is no longer considered as a consequence, but as a reason for making sales.

When using this approach, the first stage of work is to formulate goals: what sales and profits are to be achieved; what is the market share to be conquered; what groups and areas of the market are to be processed; what should be the response of consumers. Then the tasks are formulated, i.e. determine the strategy and tactics of advertising that can lead to the achievement of goals. And after that, they derive the estimated cost of the advertising program, which becomes the basis for determining the budget.

At the same time, this approach requires periodic review of the budget. If an ad campaign delivers more than expected, the costs can be reduced. If the results are lower than expected, the budget can be increased.

This method can be formalized in a linear form as follows:

Ea = p * n 0 * S / S max ,

where p is the cost of one so-called rating unit;

S - the desired level of sales;

S max - the maximum level of sales volume (conditionally 100% coverage of the target audience).

Let's say S max \u003d 100 thousand dollars, n 0 \u003d 2000, p \u003d $ 10. Then if the company aims to reach the level of sales of 75 thousand dollars, it needs to cover 75% of the target audience with advertising (75/100), which will require payment of 1500 rating units, which in turn will require 15 thousand dollars of advertising budget.

Let's consider another version of the method under consideration - the Yule model.

Here is a general formula for this model:

Ea = p * n 0* 1/ (k 0 * k) * N/ N max ,

where p and n 0 have essentially the same values ​​as for the previous method;

N max - the number of potential clients of the advertiser;

N - the number of customers who will become regular customers of this company;

k is the ratio of the number of clients of a given firm who have become permanent to the number of customers who will try the product of this firm;

k 0 - the ratio of the number of customers who try the product of this company to the number of those who saw the advertisement of this company.

It is easy to see that N / k is the number of customers who have tried the product of this company, and N / (k * k 0) is the number of potential customers who have seen the advertisement of this company.

Suppose a firm wants to enter the market with a new type of cigarette. The market consists of 50 million smokers (N max =50 million). The firm wants 4 million smokers to switch to this brand of cigarettes (N=4 million). According to the calculations of the company's marketers, this will be 40% of the number of those who have tried cigarettes of this brand (k = 0.4, respectively = 10 million). This, in turn, will be 25% of the number of those who saw the advertisement of this company (k 0 =0.25, respectively =40 million). Thus, advertising should reach 80% of potential customers (=0.8). Conventionally, when covering 100% of potential customers, 4000 advertising units are needed (n 0 = 4000). Then 3200 ad units (=3200) are needed to cover 80%. One unit of advertising will cost $3,000 (p=$3,000). Then the total budget of the advertising campaign should be 9600 thousand dollars.

This model is almost identical to the previous method, with the only exception that instead of the turnover value, the number of customers is used here, which in some cases (as in the case of cigarettes) is quite justified.

Two more models can be distinguished in the methods for determining the size of the budget based on the goals and objectives: the “Vidal-Wolf model” and the “ADBUDG model”, however, due to the fact that these models are very similar to those described above, and are also relatively rarely used in practice , we will not consider them in detail in our work.

Let us note the general shortcomings characteristic of the methods for calculating the advertising budget depending on the turnover. The dependence of the turnover on the size of the advertising budget is either linear or non-linear. These dependencies contain from 1 to 4 coefficients (both linearly dependent and linearly independent of each other). Purely from a mathematical point of view, to find these coefficients, it is necessary, firstly, to know the number of dependence points S=f(E A), equal to the number of linearly independent coefficients, and secondly, to solve a system of equations with respect to these coefficients. However, if we can determine at least one point of dependence S=f(E A), then it is not clear why we cannot determine the point we need. So, for example, for the 2nd method, one could directly estimate that in order to achieve a sales level of $75,000, it is necessary to spend $15,000 on advertising. For the Yule model method, one could similarly directly estimate that to attract 4 million smokers will require 9600 thousand dollars of the advertising budget. For other methods, the situation is similar. However, let's even assume that we correctly determined the amount of the advertising budget based on the amount of turnover (current or desired). But there is hardly any reason to believe that the value of the desired turnover is the optimal value. It can be either overestimated (then part of the advertising costs are wasted) or underestimated (then, with a larger advertising budget, the company would have a profitability greater than what is obtained with a given advertising budget).

This method is based on an algorithm for finding the optimal value of the advertising budget according to the criterion of the maximum ratio of advertising effectiveness to advertising costs. This is perhaps the first method in front of which you can already lift your hat a little.

This method assumes that the effectiveness of advertising, expressed in terms of relative reach of the target audience, depends on advertising costs as follows:

f = 1 - (E A0 / E A) ,

where f is the value of coverage of the target audience (at 100% coverage f=1);

E A0 - a certain coefficient, meaning equal to the amount of advertising costs, at which the effectiveness of advertising is equal to zero (f=0). Obviously, advertising costs equal to E A0 and less than this value do not make economic sense.

It is easy to see that 100% coverage of the target audience (f=1) is achieved with an infinite amount of advertising costs (E A).

Of course, it is difficult to judge how close this dependence is to the real one, nevertheless, although it is primitive, it correctly determines the economic essence of the relationship between the target audience coverage and advertising costs.

F \u003d f / E A \u003d 1 / E A - (E A0 / E A І) .

Equating the derivative of this function with respect to E A to zero and finding the value of E A , we obtain the optimal amount of advertising costs. Substituting this value into the expression, we obtain the maximum value of the ratio of target audience coverage and advertising costs and the optimal value of target audience coverage f opt =0.5 (50%).

Since there is only one coefficient (E A0) in the formula, it is necessary to find only one point of dependence f(E A) to determine it. For example, a firm's marketers determined that with an advertising spend of $25,000 (E A =25), the target audience would reach 88% (f=0.88). From the formula it is easy to find the value of the coefficient E A0: =3. Accordingly, the optimal amount of advertising costs in this case will be 6 thousand dollars.

For example, the company's marketers have determined that with an advertising cost of $5,000 (E A1 =5), the reach of the target audience will be 16% (f 1 =0.16), and with a cost of $25,000 (E A2 =25) - 88% (f 2 =0.88). Substituting these values, we obtain the values ​​of the coefficients E A0 =4.32, k=1.21. Then the optimal value of the advertising budget E Aopt = 8.34 thousand dollars is found. The optimal coverage of the target audience will be f = 0.55 (55%).

In the original of this method, a certain intermediate value of the total GRPs (Gross Rating Points) is used to characterize advertising costs. Purely mathematically, this is not justified, since a fairly unambiguous correspondence is established between advertising costs and the number of GRPs in the method.

Now it should be noted that the function f(E A), approximating the dependence of the coverage of the target audience on the size of the advertising budget, can also have a different form. For example, this dependence can be approximated by a function. Here it is the same as in the formula f = 1 for E A . The values ​​of the coefficients k and E A0 are similarly found by solving the system of equations. The value of E Aopt in this case cannot be found analytically, which does not prevent us from finding this value by the substitution method. For the same values ​​of f 1 , f 2 and E A1 , E A2 the value of E Aopt =10.39 thousand dollars for this type of approximating function. The optimal coverage of the target audience will be f=0.46 (46%).

The main methodological error of this method is, perhaps, that the maximum ratio of target audience coverage and advertising costs acts as a decision criterion. In fact, this ratio is equivalent to the return on investment in advertising:

where I - profit due to investments in advertising E A , taking into account these costs.

Indeed, if we assume that profit I is proportional to advertising effectiveness f (which makes economic sense), optimizing the ratio of target audience coverage and advertising costs is tantamount to optimizing the return on advertising investment. However, the criterion for making a decision on the amount of advertising investments (as well as any other) cannot be the optimal profitability of these investments. Let's explain.

Let, for example, an advertising module in any publication cost 1000 rubles, and the profit brought by this advertising module will be 500 rubles. Suppose now that a module twice as large in area costs 2000 rubles, and it will bring profits of 800 rubles. Then the profitability of the 1st module will be 500/1000=0.5 (50%), and the profitability of the 2nd module will be 800/2000=0.4 (40%). If you follow the optimality criterion adopted in the Danaher-Rust method, you need to choose a module that is smaller in area. However, in reality, everything depends on the profitability of alternative investments. After all, a small module costs a thousand rubles. And how can you use the second thousand rubles? If the profitability of alternative investments of the second thousand rubles is less than 0.3 (<30%), тогда общая прибыль при вложении двух тысяч рублей будет меньше, чем при взятии большего по площади модуля. Например, рекламный модуль в другом издании будет стоить также 1000 руб., однако он принесет 200 руб. прибыли. Тогда общая прибыль составит 500+200=700 руб., что меньше 800 руб., которые получит фирма, если возьмет больший по величине модуль в первом издании.

From the above reasoning, the following conclusion can be drawn. If advertising investments are the most profitable, then the advertising budget should not be lower than the optimal value according to the Danaher-Rust method. Further, everything depends on the value of alternative investments. The less they are profitable in comparison with the return on advertising investments, the greater the value of the advertising budget should be relative to the optimal value according to the Danaher-Rust method.

In addition, it was believed that profit I is proportional to the coverage of the target audience f. However, this is true only up to a certain coverage value, above which the firm may simply not have enough funds (both working and fixed) to serve such a large number of customers. Let's take a simple example. The firm makes sales mainly by telephone. Suppose a firm has one telephone number, and as a result of an advertising campaign, the employment of the telephone line has increased to 90%. All the profit that would be brought by customers who did not get through due to a busy phone is the lost profit of the company (opportunity costs). And in this case, investments in additional telephone lines will certainly turn out to be more profitable than further investments in an advertising campaign. These are precisely those alternative investments, the profitability of which must be compared with the profitability of investments in advertising. In other words, the firm must have enough production capacity for a possible increase in turnover. Otherwise, part of the advertising money may be thrown to the wind.

Summing up some results of the analysis of the above methods for developing advertising budgets, it should be noted that none of the above methods can be recognized as universal and offering the only correct way to calculate advertising costs. The communicator needs to independently choose the best method, taking into account the specifics of their marketing and advertising activities, as well as financial capabilities.