Product & Brand Management

Prof : Dr. Artee Aggrawal

BUDGETING FOR PRODUCT


Course: PGDM
DOR: 19/02/14

TOPICS COVERED

BUDGET- TYPES
WHAT IS MARKETING & PRODUCT
BUDGET
APPROACHES TO MARKET
BUDGETING
What is a Budget ?

A budget is a financial plan of
future costs and revenues for
a specific period in the future

What are the purposes of Budgeting ?
To compare budgeted costs with
actual costs at the same level of
activity
To help in controlling costs
To plan product levels
To compare like with like
Principal Budgets

1. Cash Budget
2. Master Budget
3. Flexible Budget (Higher Level
only)
Principal Budgets
Cash Budget

*prepared on weekly/monthly basis to allow
management deal with shortages or
surpluses.
*show the opening cash position + inflows
outflows = closing cash
*Only actual receipts and payments are included

Principal Budgets
Master Budget

*Includes all subsidiary budgets

*Consists of budgeted profit and loss account
and budgeted balance sheet

*If manufacturing firm - a budgeted
manufacturing account and budgeted trading
account will be also prepared
Principal Budgets
Flexible Budgets ( Higher Level )

*adjusting the original budget to the actual level
of activity so that comparisons can be made

*separate costs into fixed costs and variable
costs using the high low method
The Master Budget
Selling and
Administrative
Budget
Production
Budget
Ending
Inventory
Budget
Direct
Materials
Budget
Direct
Labor
Budget
Manufacturing
Overhead
Budget
Sales
Budget
The Master Budget
Direct
Materials
Budget
Ending
Inventory
Budget
Production
Budget
Selling and
Administrative
Budget
Direct
Labor
Budget
Manufacturing
Overhead
Budget
Cash
Budget
Sales
Budget
Budgeted
Financial
Statements
Exam Tips
A Company Prepare Budgets-
sales, production, materials usage , material
purchases

Prepared in 3 parts-
A schedule of receipts
A schedule of payments
A cash budget
The Sales Budget
A detailed schedule showing expected
sales for the budgeted periods expressed
in units and Rs.
The Sales Budget
First budget prepared
Derived from the sales forecast
Managements best estimate of sales revenue for the
budget period
Every other budget depends on the sales budget
Prepared by multiplying
expected unit sales volume for each product
times
anticipated unit selling price
The Sales Budget
Factors considered in Sales Forecasting:
O General economic conditions
O Industry trends
O Market research studies
O Anticipated advertising and promotion
O Previous market share
O Price changes
O Technological developments
MARKETING & PRODUCT
BUDGETING
Budgeting in essence means resource
allocation for marketing.

Product budgeting is resource allocation for
products.
APPROACHES TO MARKET
BUDGETING
Economic Analysis
Management Science Models
Corporate Budgeting Approach
Economic Analysis
It is based on marginal analysis.
We keep on spending till the incremental or
marginal income from the marginal unit of
expenditure is equal to its cost.
Till this point, income generated is more than
the cost. It is a way to maximize profits.

Management Science Models
These are quantitative models which decide
the optimum marketing and ad spends.

These sophisticated models are not used
much in practice, and whenever used, they
are used for wrong reasons.
CORPORATE BUDGETING
APPROACHES
1. Translates Sales goals into marketing goals
2. Breaks down Marketing goals into tasks to be
achieved.
3. Calculates the costs for each of these tasks
4. Sums up these costs to give the marketing
budgets
5. Repeats this for each product & market
thereby establishing total marketing budget

BUDGETING IN PRACTICE
1. BOTTOM UP BUDGETING (product level)

1. TOP DOWN BUDGETING

In actual practice a top down / bottom up combi
approach provides more control to the top
management to keep the overheads low.
BUDGETING FOR NEW OR
MODIFIED PRODUCTS
REGRESSION -to predict cumulative trial rate
Pull expenditure is linked to awareness &
Push expenditure to distribution.
LRR (long term Retention Rate)-For rate of trial
LRR gives the rate at which the last-time buyers
buy back the product (RR) & the rate @last time
buyers of competing products switch over (SBR)
After attaining a substantial level of trials, a new
product finds repurchase behavior has become
increasingly important.

MARKETING BUDGET FOR
ESTABLISHED PRODUCT
1.Management has a strategic plan for all
product & product line
2. The direct marketing expenditure is attributed
to the marketing support activities like
competitive analysis, cost analysis, spending
on marketing activities & forecasting.
3. MARMIX MODEL DEVELOPED BY PESSEMIER
IN 1982 CAPTURES THE ABOVE PHILOSOPHY
Thank You