Establishing Total Marketing communications Budget

Personal communication is often more effective than mass communication, mass media might be the major means of stimulating personal communication. Mass communications affect personal attitudes and behavior through a two-step process. Ideas often flow from radio, television, and print to opinion leaders from these to the less media-involved population groups.

This two-step flow has several implications. First, the influence of mass media on public opinion is not as direct, powerful, and automatic as supposed. It is mediated by opinion leaders, people whose opinions are sought or who carry their opinions to others. Second, the two step flow challenges the notion that consumption styles are primarily influenced by a “trickle-down” or “trickle-up” effect from mass media. People interact primarily within their own social groups and acquire ideas from opinion leaders in their groups. Third, two-step communication suggests that mass communicators should direct messages specifically to opinion leaders and let them carry the messages to others.

One of the most difficult marketing decisions is determining how much to spend on promotion, John Wanamaker, the department store magnate, once said I know that half of my advertising is wasted but I don’t know which half.

Industries and companies vary considerably in how much they spend on promotion. Expenditures might be 30-50% of sales in the cosmetics industry and 5-10% in the industrial-equipment industry. Within a given industry, there are low and high spending companies. How do companies decide on the promotion budget? Four common methods are: the affordable method, percentage-of-sales method, competitive parity method, and objective-and-task method.

Affordable method:

Many companies set the promotion budget at what they think the company can afford. The affordable method completely ignores the role of promotion as an investment and the immediate impact of promotion on sales volume. It leads to an uncertain annual budget, which long range planning difficult.


Many companies set promotion expenditure at a specified percentage of sales (either current or anticipated) or of the sales price. Automobile companies typically budget a fixed percentage for promotion based on the planned car price. Oil companies set the appropriation at a fraction of a cent for each gallon of gasoline sold under their own label.

Supporters of the percentage-of-sales method see a number of advantages. First, promotion expenditures will vary with what the company can “afford. This satisfies financial managers, who believe that expenses should be closely related to the movement of corporate sales over the business cycle. Second, it encourages management to think of the relationship among promotion cost, selling price, and profit per unit. Third, it encourages stability when competing firms spend approximately the same percentage of their sales on promotion.