Though the ________ method of setting an advertising budget is simple to use and helps management think about the relationships among promotion spending, selling price, and profit per unit, it wrongly views sales as the cause of promotion rather than the result.
A) percentage-of-sales
B) integrated
C) competitive-parity
D) objective-and-task
E) regression

Question

Quizplus · Accepted Answer

The question presents the advantages and disadvantages of different methods to set an advertising budget. By definition, the percentage-of-sales method sets the budget as a fixed percentage of the previous year's sales or the projected sales for the next year. While this method is easy to use and helps management understand the impact of advertising on profit, it assumes that sales are the cause of advertising, rather than the result. In other words, this method overlooks other external and internal factors that affect sales, such as market trends, competition, product quality, pricing, and distribution channels. Therefore, the percentage-of-sales method may lead to overestimating or underestimating the budget needed to achieve marketing objectives. The other methods mentioned in the question (integrated, competitive-parity, objective-and-task, and regression) are more comprehensive and strategic, as they consider multiple factors and goals to determine the optimal budget allocation. However, the best choice based on the information given is A, as it explicitly states the limitation of the percentage-of-sales method.

Though the ________ Method of Setting an Advertising Budget Is