Virgin Blue Budgeting Method for Advert - Essay Example

Virgin Blue Budgeting Method for Advert Virgin Blue has made its presence felt in the leisure segment of the Australian airline industry ever since it jumped into the fray a decade ago. Now the airline intends to grab a bigger pie of the business segment in which Qantas holds the numero-uno position. As a strategy, the company will continue to focus on the leisure market and at the same time build and develop the corporate and business customer base. To achieve this goal the company has decided to resort to a two week advertising campaign that appeals to the business/corporate customer.

Budgeting Methods In any such marketing campaign the amount to be spent (budget) can be arrived at in more than one ways. Companies can decide on the advertising budget by using any of the following methods; percentage-of-sales-method, share-of-voice parity and the objective-and-task method. Percentage of Sales Under this method the promotional expenditure is set at a specified percentage of sales, either current or anticipated. As per the audited annual results of the company, Virgin Blue reported revenue of AUS$2.

9 billion in 2010. The airline may set aside; say 3 percent or AUS$ 8, 70,000, of its revenue for advertising. As a practical application this should be the annual spend of the company. Since this particular campaign is to run for a 2-week period and is specifically meant to target the business class, a better approach would be to take out a percentage from the projected additional revenue that the business class would provide. The website of Virgin Blue reveals that the airline carried 13, 73,053 domestic passengers in 2010.

Assuming an equal spread throughout the year this translates to 1, 14,421 customers in a month and 57, 210 in a fortnight. If the proposed advertising campaign targets an additional 5 percent customers (5% of 57, 210 i.e. 2860) from the business class in the fortnight after the campaign and these 2860 customers pay, on average AUS$ 300 as fare, an amount of AUS$ 8, 58,000 (2860*300) would be generated as additional revenue. Even if the airline spends the entire amount on advertising, it still gains over an annualized basis as some of these passengers would continue to fly with the airlines in the future as well and would thus be a source of revenue.

Share of Voice Horton (2011) reveals that Virgin Blue holds merely 12 percent market share in the business segment. On the other hand Qantas dominates the segment with a mammoth 88 percent market share. If the challenger (Virgin Blue) was to set its promotional budget to achieve share-of-voice parity with competitors, the advertising budget would be minimal and would not serve the intended purpose. Akin to new products that typically need large advertising budgets to build awareness and gain consumer trial, Virgin Blue needs to advertise on a large scale to induce the business class to fly the airline.

The company’s low market share in this segment warrants high spending, so it is not appropriate to set the budget according to this method. Objective and task method To ensure that the airline is able to reach and attract the targeted segment, it is imperative that the airline should go in for an assorted media mix. The advertisements should be placed in the electronic as well as the print media. The media vehicles have to be chosen keeping in mind their readership and the demographic profiles of their viewers.

The setting of the advertising budget with the help of objective and task method has been detailed below. The campaign will kick off with advertisements on The Australian, Australian Financial Review, The Sydney Morning Herald and The Age. The print advertisement will also be placed in The Deal (Friday), Australian Golf Digest and the Weekend Australian Magazine. The cost that will be incurred in the print media is as under: Media Vehicle Placement Cost (AUS$) The Australian (Mon-Fri) Business Package (Everyday) 20,228 The Weekend Australian (Sat) Horizontal Half Page 91,530 The Deal (Fri) Double Page Spread 38,032 Australian Golf Digest Inside Front Cover Spread 7,260 The Weekend Australian Magazine Inside Front Cover Spread 40,265 The Australian Financial Review Life & Leisure Full Page 42,754 The Sydney Morning Herald Monday to Friday 1, 41, 490 The Age Monday to Friday (Full Page) 35, 300 Total   4,16,859 A budget of AUS$ 5,04,216 has been estimated and has to be kept aside for booking 60 second spots for the television commercials in the Sky News Business Channel and the Fox News Channel.

This amount will also help purchase banners on the websites of the Australian Broadcasting Company and the Financial Review. Likewise a promotional budget of AUS$ 2, 50,000 has been set aside for advertising on billboards and the waiting lounges of all the leading airports in Australia. Thus the total budget for the campaign, calculated under the objective and task method is AUS$ 11, 71, 075 (Print media 4, 16,859; Electronic media 5, 04, 216 and others 2, 50, 000). The advertising agency has agreed to give a discount of 15 percent on this amount.

Therefore for Virgin Blue, to translate its plan into actions that give results, the advertising budget is AUS$ 9, 95, 414 (85% of 11, 71, 075). References Adcentre.com.au (2011). Rates-search. Accessed September 27, 2001. Retrieved from http://adcentre.com.au/rates-search.aspx Casben, L. (2011). Virgin australia aims for larger market share. Ultimo: Australian Broadcasting Corporation. Retrieved from http://search.proquest.com/docview/864885709?accountid=133056 David, R. (2007). The margin myth.

Airline Business, 23(11), 56-56-58,60. Retrieved from http://search.proquest.com/docview/204154558?accountid=133056 Horton, W. (2011). Upwardly-mobile virgin loses australian blues. Airline Business, 27(6), 22-22. Retrieved from http://search.proquest.com/docview/878050927?accountid=133056 Mitchell, L. A. (1993). An examination of methods of setting advertising budgets: Practice and the literature. European Journal of Marketing, 27(5), 5-5. Retrieved from http://search.proquest.com/docview/237007821?

accountid=133056 Newsspace. (2011). Metronews. Accessed September 27, 2011. Retrieved from http://www.newsspace.com.au/metronews VirginAustralia.com. About Us. Accessed September 27, 2011. Retrieved from http://www.virginaustralia.com/AboutUs/index.htm