What is Advertising Appropriation
Advertising appropriation is the portion of a total marketing budget that is allocated for advertising over a specific time period. The advertising appropriation policy for a company may be based on any one of a number of approaches. For example, spending an amount on advertising that is a fixed percentage of sales or based on the ad spend level of the competition.
Breaking Down Advertising Appropriation
In practice, the amount of the advertising appropriation is not very easy to establish. This is because of the lack of a definite relationship, in most cases, between the amount of advertising and the company's sales and profitability. Advertising appropriation is also sometimes referred to as an advertising budget.
Advertising Appropriation Methods
There are a number of methods that may be used to determine the correct advertising appropriation for a given company. They include:
- Affordable method: An advertising budgeting method that is based on what a company thinks it can afford to spend on marketing. This method may be unreliable, leading to too much or too little being spent relative to returns, because it is not based on a specific goal.
- Adaptive control method: Utilizes market research to estimate sales volume and profitability and adjust budget to assumptions.
- Competitive parity method: Bases advertising budget on what a company expects its competitors to spend. Operates under the assumption that competing firms have similar marketing goals and execute them rationally. One objective of this strategy is to avoid a price war.
- Return of investment method: A strategy that devises an advertising budget by balancing the amount of advertising to the profits generated from advertising.
- Objectives and task method: A budgeting strategy based on the cost required to achieve a business or sales objective.
- Percentage of sales method: Based on dedicating a fixed percentage of expected sales revenue to advertising. Despite for its simplicity, this method is criticized because it works contrary to the assumption that advertising leads to sales.
- Percentage of profit method: Similar to percentage of sales, this method bases ad spend on a fixed percentage of profits generated by a company — a more reliable measure of success than percentage of sales.
Advertising Appropriation Influencing Factors
A number of factors may influence how advertising appropriation is figured. For example, a product or company with a high market share may require a smaller advertising budget that an upstart competitor. Similarly, a new product requires higher spending to build awareness and buzz; a mature product may not. Advertising effectiveness can be reduced when a potential customer sees too many of them; a budget can reflect such clutter by reducing ad runs. Reflexively, a competitive market will require more advertising and greater advertising appropriation.