Discuss the percentage-of-sales method used for setting the total budget for advertising
What will be an ideal response?
The percentage-of-sales method involves setting the promotion budget at a certain percentage of current or forecasted sales. The percentage-of-sales method is simple to use and helps management think about the relationships between promotion spending, selling price, and profit per unit. It wrongly views sales as the cause of promotion rather than as the result. Thus, the percentage-of-sales budget is based on the availability of funds rather than on opportunities. It may prevent the increased spending sometimes needed to turn around falling sales. Finally, the method does not provide any basis for choosing a specific percentage, except what has been done in the past or what competitors are doing.
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