Question

Toward the end of the fiscal year, the owner of a small company came back from lunch concerned because he had learned that a business targeting his same customer base was planning on spending $150,000 on promotion. As soon as he arrived at the office, he called his financial manager and said, "I want to budget $150,000 for next year's promotion." Which method of promotional budgeting did the owner want to use

Answer 1

Answer:

The Competitive-parity method

Explanation:

The competitive parity method refers to an advertisement expense budgeting method wherein, a firm budgets or plans it's own advertisement expenditure which is based upon the estimated advertisement expenditure of it's competitors.

Under the method, the budget allocated for advertisement by a firm is set at par with those of the competitors.

The drawback of such a method being it's assumption of all firms having same marketing objectives. Also herein, if the competitor commits a mistake w.r.t it's budget, consequently the same mistake shall accrue to the firm following it.

In the given case, the owner learnt of his competitor's advertisement budget being $150,000, post which he immediately set the budget of his own company as $150,000. The method of promotional budgeting conveyed here is, the competitive-parity method.