Wednesday, September 17, 2008
Chapter 6, Question 7
Some credits content that using the percentage of sales budgeting technique is illogical. Explain. They argue that the method reverses logical relationship between sales and advertising. They argue that advertising causes sales, not sales causes advertising. I would like to discuss this in class, because to me, this is a chicken/egg theory.
Subscribe to:
Post Comments (Atom)
1 comment:
The criticism: when sales are anticipated to increase, advertising, set as a percentage of sales, will also increase; however, the advertising budget will decrease when sales are expected to decrease.
The criticism of the percentage-of-sales method is based on this behavior. Instead of decreasing advertising when sales are anticipated to decline, a company should possibly increase advertising to prevent further sales erosion and to achieve more impact in the marketplace.
Too many companies view promotion as a discretionary expenses, since it is difficult to calculate ROI (return on investment.)
Post a Comment