Chapter 4: Budgets
Table of contents
1. Some key concepts
2. Communication budgeting methods
3. References
1. Some key concepts
Share of Market or SOM is the percentage of the total available market a company serves.
Share of Voice or SOV is the percentage of the total communication exposure a company gets.
2. Communication budgeting methods
Determining and allocating communication budgets is one of the primary problems and strategic issues facing a
marketer (De Pelsmacker et al., 2018). There is no ideal formula for making the best budgeting decisions. Decisions need
to be based on marketing and communication objectives, knowledge of past budgets and their effectiveness and
competitive actions. Furthermore, budgets need to be continuously re-assessed against financial feasibility at all stages
in the planning process and can be adapted to specific circumstances. If for example, a company is very visible in society,
when consumers have many contact points with the company and the company is frequently exposed in the media
(Finne, 2006), the impact of other communication tools can become so insignificant the company can reduce the
communication budget and allow the time and situational factors to do the job. In addition, both long-term and short-
term effects of communication efforts on sales and profits can occur (De Pelsemacker et al., 2018).
Sales response models like the concave sales response model or the S-shaped relation response model indicate how the
communications budgets affect sales. The former model follows the law of diminishing returns: the incremental value of
added communication expenditures decreases so that there is an optimal point after which any additional
communication effort will not convince non-buyers (De Pelsemacker, 2018). If this applies, big budgets could overshoot
the communication purpose. The S-shaped relation response model assumes that even when communication efforts are
zero, there are some customers who will buy the product. A certain level of communication is needed to significantly
increase sales, but at a certain point, greater additional communication expenditures will not result in greater sales or
can even evoke negative sales reactions (De Pelsemacker et al., 2018).
Because communications efforts have a short-term and long-term effect on sales and market share the relationship
between sales and communications is difficult to measure using only sales response models. The traditional view
outlines that communications are a long-term investment in goodwill (Aaker et al., 1987). Philip Jones (1995) proved
that communication can also have a short-term effect. Based on scanner data, he related advertising exposure to
behavior and saw this as a measurement of communication effectiveness (STAS, short term advertising strength). He
discovered that 70% of all ad campaigns could generate immediate results, while only 46% had long-term effects. Sales
response models do not account for the effect of other marketing mix instruments or other communication efforts on
sales so it is hard to pinpoint what the exact financial results of a communication campaign are. The synergy between
the different (communication) tools makes it also hard to isolate the effect a specific communication budget on
commercial results. Sales response models do not take effect of competitive actions and environmental factors in
account (De Pelsemacker, 2018).
Other budgeting methods that are used in practice are marginal analysis, inertia, arbitrary allocation, affordability
method, competitive parity and the objective and task method (De Pelsemacker, 2018). The latter is one of the least
arbitrary methods which makes it a difficult technique to use but also probably the best technique (De Pelsmacker et al,
2018). It starts from communications objectives and the resources that are needed to reach these planned goals. It
accounts for all investments that are needed to accomplish the communication objective(s) and it requires strategic
planning and investments analysis.
Table of contents
1. Some key concepts
2. Communication budgeting methods
3. References
1. Some key concepts
Share of Market or SOM is the percentage of the total available market a company serves.
Share of Voice or SOV is the percentage of the total communication exposure a company gets.
2. Communication budgeting methods
Determining and allocating communication budgets is one of the primary problems and strategic issues facing a
marketer (De Pelsmacker et al., 2018). There is no ideal formula for making the best budgeting decisions. Decisions need
to be based on marketing and communication objectives, knowledge of past budgets and their effectiveness and
competitive actions. Furthermore, budgets need to be continuously re-assessed against financial feasibility at all stages
in the planning process and can be adapted to specific circumstances. If for example, a company is very visible in society,
when consumers have many contact points with the company and the company is frequently exposed in the media
(Finne, 2006), the impact of other communication tools can become so insignificant the company can reduce the
communication budget and allow the time and situational factors to do the job. In addition, both long-term and short-
term effects of communication efforts on sales and profits can occur (De Pelsemacker et al., 2018).
Sales response models like the concave sales response model or the S-shaped relation response model indicate how the
communications budgets affect sales. The former model follows the law of diminishing returns: the incremental value of
added communication expenditures decreases so that there is an optimal point after which any additional
communication effort will not convince non-buyers (De Pelsemacker, 2018). If this applies, big budgets could overshoot
the communication purpose. The S-shaped relation response model assumes that even when communication efforts are
zero, there are some customers who will buy the product. A certain level of communication is needed to significantly
increase sales, but at a certain point, greater additional communication expenditures will not result in greater sales or
can even evoke negative sales reactions (De Pelsemacker et al., 2018).
Because communications efforts have a short-term and long-term effect on sales and market share the relationship
between sales and communications is difficult to measure using only sales response models. The traditional view
outlines that communications are a long-term investment in goodwill (Aaker et al., 1987). Philip Jones (1995) proved
that communication can also have a short-term effect. Based on scanner data, he related advertising exposure to
behavior and saw this as a measurement of communication effectiveness (STAS, short term advertising strength). He
discovered that 70% of all ad campaigns could generate immediate results, while only 46% had long-term effects. Sales
response models do not account for the effect of other marketing mix instruments or other communication efforts on
sales so it is hard to pinpoint what the exact financial results of a communication campaign are. The synergy between
the different (communication) tools makes it also hard to isolate the effect a specific communication budget on
commercial results. Sales response models do not take effect of competitive actions and environmental factors in
account (De Pelsemacker, 2018).
Other budgeting methods that are used in practice are marginal analysis, inertia, arbitrary allocation, affordability
method, competitive parity and the objective and task method (De Pelsemacker, 2018). The latter is one of the least
arbitrary methods which makes it a difficult technique to use but also probably the best technique (De Pelsmacker et al,
2018). It starts from communications objectives and the resources that are needed to reach these planned goals. It
accounts for all investments that are needed to accomplish the communication objective(s) and it requires strategic
planning and investments analysis.
