Deciding on the advertising budgets:
How does a company know if it will be spending the right amount? If it spends too little, the effect will be negligible. If it spends too much, then some of the money could have been put to the better use. Advertising has a carry over effect that latest beyond the current period. Although advertising is treated as a current expanse. Part of it is really an investment that builds up an intangible asset called brand equity.
1. Stage in the product life cycle: new products typically receive large advertising budgets to build awareness and to gain consumer trial. Establishes brands usually are supported with the lower advertising budgets as a ratio to sales.
2. Market share and consumer base: high market share brands usually require less advertising expenditure as a percentage of sales to maintain their share. To build share by increasing market size requires larger advertising expenditures. On a cost - per- impression basis, it is less expensive to reach consumers of a widely used brand than to reach consumers of low share brands.
3. Competition and clutter: in a market with a large number of competitions and high advertising spending, a brand must advertise more heavily to be brand. Even the simple clutter from advertisements not directly competitive to the brand creats a need for the heavier advertising.
4. Advertising frequency: the number of repetions needed to put across the brand's message to consumers has an important impact on the advertising budget.
5. Product substitutability: brands in a commodity class (cigarettes, beer, soft drinks) require heavy advertising to establish a differential image. Advertising is also important when a brand can offer unique physical benefits or features.