What are the different factors that influence advertising budgets?

Question

What will be an ideal response?

Answer 1

The required size of the organization's advertising budget is often influenced by several factors. When deciding
upon a budget to cover advertising expenses, those factors can impact the level of spending required to successfully
introduce a new product or service and keep it successful throughout its life cycle.
• Life Cycle Stage: Generally, new products and services require higher budgets, because they require expensive
efforts to boost awareness and encourage customer trial. Mature products and services generally require lower
amounts of funding as a percentage of sales. Declining products can have high amounts of funding as a percentage
of sales (despite lower total expenditures), due to the declining period's lower sales volume.
• Market Share: Brands with lower market share generally require higher advertising budgets, as a percentage of
sales, than those with high market share, because the sales rate is lower.
• Competition: Brands in highly competitive markets must advertise more heavily to remain on customers'
consideration lists.
• Advertising Frequency: Brands in markets subjected to significant amounts of advertising, such as those of
consumer packaged goods, generally must advertise more frequently to reach its audience with a designated
number of repetitions. Higher frequency results in higher budgets.
• Product Substitutability: Brands in markets where offerings are perceived as nearly identical (such as the market
for airline services) require higher budgets to emphasize their differentiation.