Page 147 - Marketing the Basics 2nd

peRcenTage of saLes MeTHoD
A more reliable method of establishing a communications budget is to fix the budget to the performance of the product itself. In other words, though the communications budget differs according to stage of the business cycle, the percentage spent remains equal. What’s more, if every competitor adopts this practice, the industry begins to demonstrate conditions that economists term market equilibrium.
As promising as the percentage of sales method sounds, there are a number of disadvantages. First, the method assumes product sales are closely correlated with the business cycle. Some products are always in demand, and that advantage can be used to gain more market share when the competition is languishing. But if the firm employed a percentage of sales method, it cannot take advantage of market opportunities. More concerning, it assumes markets are in a state of equilibrium. Markets are never in a state of equilibrium. There is a constant churning of firms entering and exiting markets, new technologies destroy old industrial structures, and managerial practices re-engineer how business is conducted. Maintaining a constant communications strategy with so much turbulence, while courageous, is ultimately folly.
oBJecTive anD Task MeTHoD
A superior method is the objective and task method. It requires the marketer first to define an objective, second to determine the tasks required to achieve the objective and third to estimate the total cost. Why it is not as widely used as we would like is because it is hard work. This method allows firms to capitalize on market opportunities as they arise. Firms choose between a push strategy and a pull strategy. A push strategy entails using different promotional tools to push the product through the channels to market. The manufacturer directs its promotional activities to convince its intermediaries to carry a product. This may include for special bonuses for the store and the salesperson to sell a particular brand or product. If several competitors do this it can lead to a bonus war which is gratifying for the salespeople but lousy for the profits of the manufacturers. The intermediaries in turn direct their
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