Problem: A percentage-of-sales approach is a simple but naive way to deal with the advertising budget. In the share-of-voice approach, the activities of key competitors are factored into the budget-setting process. A variety of quantitative models may also be used for budget determination. The objective-and-task approach is difficult to implement, but with practice it is likely to yield the best value for a firm's advertising dollars.
American Express marketers say they do not use the percentage-of-sales approach to advertising budgeting because if sales decrease in the segment, so will their budget. The marketers are keenly aware that many budgeting methods fail to address the plan's objectives and relate these to the dollars to be spent.
- Which budgeting technique is American Express most likely to use, based on this awareness and the information in this scenario?
- Do you agree with this technique? Why or why not?