Adding it up: you can save time by trying one of three short-cut approaches to an annual budget. But for the maximum marketing benefit, a fourth technique is preferred above the others.

• Author: Marlin, Brenda
• Position: Marketing Budgets

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Yes, it's that season again. Oh what fun! I'm not talking about the holidays. I'm referring to creating next year's marketing budget.

Whether you are drafting a budget for one specific business line or for the entire bank, you will need to think both proactively and strategically if you expect good results.

In this article, I will discuss the four common approaches used to develop an annual marketing budget and the advantages and disadvantages of each. I will explain which method is better than the other three. Also, I will include some practical observations about the creation process from two marketers.

According to Bruce Clapp, CFMP, author of the ABA training book, "Marketing Financial Services," the bank marketing budget generally includes expenditures for five core activities:

* Advertising.

* Sales promotion.

* Marketing research.

* Sales/customer service training.

* Public relations.

The latest ABA survey of bank marketers showed that the three major expenses were: advertising, 53 of the marketing budget; public relations, 23 percent; and sales promotions, 16 percent.

There are at least four recognized methods of determining a financial organization's marketing budget. These are:

* Percentage.

* Competitive parity.

* Incremental.

* Objective-and-task.

Percentage method

Some banks base their advertising expenditures on the size of their assets or deposits. For example, a bank may decide to spend 0.1 percent of its total assets, or some percentage of its assets or liabilities (deposits), on advertising.

Although this is a common benchmark number for a marketing budget, this percentage method has several flaws. First, it is based on the bank's past performance rather than on its objectives for the future; it proposes a budget based on current assets, not where the bank is heading. 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.

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Competitive parity method

This method might also be called "follow 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 same way to the same volume of dollars spent by different banks. It...