How to the Methods of Calculating Banks Marketing Budget Essay Example for Free

How to the Methods of Calculating Banks Marketing Budget EssayHow to Decide Banks Marketing Budget? Introduction Now a mean solar day under taking trade activities is compulsory and a key to exist in the business environment especially in the financial sector where opposition is unattackable. In Ethiopia there are 16 private commercial deposits and three public owned bevels. in that respect is strong competition among these banks to aspire market dower and earn profit especially for those banks that enter the market recently. In addition according to the National Bank of Ethiopia Directive, all commercial bank have to reach 500 million paid up capital in the coming four years. In order to achieve this amount of capital these banks must convey new share, persuade their existing share holders to fully pay the subscribed amount and retain the earning instead of paying the dividend. These are achieved by undertaking strong marketing campaign.All the banks have marketing b udget and the budget differs based on the surface and depth of their capital. However, determining the size of marketing budget is not an easy task. It is big question often asked by marketers and bank executives. In Ethiopia it is common to see Television program and football events sponsored by commercial banks, ad of banks products and services in any time on electronics and print media especially money transfer adverts during the holiday season, distributing giveaway materials and entertaining their clients.The marketing budget for a bank generally includes expenditures for five different activities Advertising Debub Global Bank, MPPE surgical incisionCompiled by Behaylu WondafrashPromotional activities Sales promotion Marketing research Sales/customer service training and Public relations How a bank allocates its total marketing budget among various marketing activities depends largely on bank size in terms of capital and branch distribution and advertizement cost (productio n and air time cost). Most the Banks in Ethiopia spends about 80% of their total marketing budgets on advertising. The rest activities took 20 percent of the budget. Most banks are currently using sales promotion activity like commercial bank of Ethiopia which let awards for who save 1000 birr and above in any branch of it and promotional activities like sponsoring Ethiopian Great Run and donating to children aid.Advertising took about 80 percent of the budget. This due to the fact that time to time increasing cost of advertising rate and production cost. The lion share of the budget is goes to the Ethiopian intercommunicate and Television Agency and thence to the private FM radio stations especially Fana FM and Sheger FM. Most banks also use print media like newsman and fortune news paper. But how does a bank determine how much it should spend for marketing in general and advertising in particular? There are methods of calculation. Methods of calculation According to author of M arketing Financial Services, there are different ways to calculate a banks marketing budget. Banks use at least four methods to determine what they will spend on marketing in general and on advertising in particularDebub Global Bank, MPPE DepartmentCompiled by Behaylu WondafrashThe region method, The competitive parity method, The incremental method and The objective-and-task method.1. Percentage method the percentage method states banks advertising budget is 1/10th of 1 percent of a banks total assets. This percentage method has several drawbacks or flaws. First, it is based on the banks past performance rather than on objectives for the future. Second, it views assets or deposits as the cause of advertising rather than recognizing that increases in these variables might be, to some extent, the effect of advertising. Third, it discourages aggressive advertising and reduces advertising expenditures in periods of economic slowdown. Research indicates that firms that maintain or incr ease their advertising during periods of recession do better after the recession.2. Competitive parity method this method is also known as follows the leader.A bank determines what its competitors are spending on advertising and simply follows their lead. This method is based on the erroneous assumption that the market responds in the equivalent way to the same volume of birr spent by different banks. It fails to take into account the effects of variations in creativity, different uses of media, the timing of campaigns, and a banks image and recognition take aim in its market area. Furthermore, a banks competitors probably use no more rational a system for determining their advertising expenditures than does the bank that is following their lead.3. incremental Method under this method a bank simply increases its advertising budget by a certain percentage each year. The percentage whitethorn take Debub Global Bank, MPPE DepartmentCompiled by Behaylu Wondafrashinto account the rate of inflation or the growth rate of the bank or it may be rigid by a planner or budgeter whose primary objective is to make the bottom line show a targeted return on assets. Whatever the percentage increase, this method does not take in to account the desired objectives of advertising and the most cost effective ways to attain them.4. Objective-and-task method. Using this method, the bank bases its advertising budget on what it will cost to meet the marketing objectives it had defined. The bank then weighs this cost against the evaluate net benefit of the new business to reassure that the cost of advertising will not reduce the profit margin on the newly acquired deposits or loans beyond acceptable limits. For example, Let us take Debub Global bank (DGB) and assume that a banks goal is to increase its one-year deposit volume by 100 million birr over its expected normal growth during a promotion period. It calculates that the profit margin on those funds (deposits) will be 6 percen t (or 6,000,000 birr). The bank must then decide how much it is willing to invest in advertising in order to generate an extra 6,000,000 birr of income. The selected amount will vary from bank to bank.This method also has its drawbacks. While it works for specific promotions that have immediately measurable results, such as increased deposit or loan volume, it cannot be used to determine the level of advertising necessary to build awareness of the bank and to develop and maintain an image for it. A bank that advertises only when it has a specific promotion to communicate may be out of the media for considerable periods of time. Most marketers agree that some maintenance level of advertising, either product or institutional, is a necessary investment, simply to keep the banks name in front of its publics.