Setting Advertising and Promotion Budgets in Multi-Brand Companies

George S. Low
Texan Christian University
Jakki J Mohr
University of Montana

'The most common way that brand managers set budgets is to start the same as last year. At least last year's budget produced last year's results. I've rarely seen zero-based budgeting. The budget and its allocation is typically based on the marketing plan and what needs to be accomplished. Judgment is very much a part of the decision making process. Models are rarely used.`

-Senior Marketing Vice-President, international grocery products company

Despite the Decision-making tools available in this information and technology age, frustration continues to haunt managers who set and allocate advertising and sales promotion budgets. In the current climate of flat budgets for many products and brands, and a concomitant interest in brand equity, loyalty, and customer value, many managers are particularly concerned about the proportion of their marketing budgets earmarked for short-term sales promotions as opposed to long-term brand advertising. Sales promotion accounted for 73 percent of all advertising and sales promotion spending in 1996 (Cox Direct). Manufacturers spent a staggering $489 billion, or 11 percent of sales, on trade promotions in 1994, up from $15 billion or only 4 percent of sales in 1978 (Schiller, 1996). The trend toward integrated marketing communications (cf. McArthur and Griffin, 1997; Schultz and Kitchen, 1997), together with concerns about marketing budget efficiency, has pushed the issues surrounding effective advertising and sales promotion budget allocations to the top of many advertisers' minds.