Virgin Blue Budgeting Method for Advert - Essay Example

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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…
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Virgin Blue Budgeting Method for Advert
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"Virgin Blue Budgeting Method for Advert"

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 Read More
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