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Establishing Your Marketing Investment Part Five

by Mark Levit

Previous articles in the Partners & Levit Marketing Budget Library discussed the most common budgeting exercise, competitive position and market environment, new product activity and market growth.

This article addresses the next of our ten budgeting dicta, Capacity Utilization

When production capacity is available, marketing investment should increase. In particular, firms with a large fixed asset base cannot afford to have idle production. They turn to advertising and promotion to load capacity. Businesses require lower marketing investments as production capacity fills up. To generate demand without adequate capacity results in dissatisfied customers.

Sometimes a business that wishes to enter a new market or capitalize on market growth will build production capacity in anticipation of demand. In this case, its managers tend to invest marketing dollars readily to make the fixed investment productive and to capture share.

In summary, the competitive environment and the place a business occupies within it will have strong influence on its marketing investment. But there are other major factors to consider. Whether a firm has a large or small share, whether it is content to occupy a niche in a mature market or wishes to conquer a growing and innovative one, whether it has excess capacity to fill or can barely meet existing demand, all these factors by themselves can alter the advertising and promotion level and mix. And we have not yet even explored how the customer base and product characteristics impact the marketing budget. Customer and product factors, in addition and in relation to environmental ones, can wring strange permutations on marketing levels. Consider, for example, the marketing decisions facing the manager of a small-share business that is trying to make its mark on an innovative growth market by offering the highest quality product possible. Will this quality make the product easier to market, or harder? What about price? If a premium is charged to support intense marketing initiatives, will this not have the effect of further increasing the marketing investment necessary to convince the customer?

The next group of decision rules relates to the customer and product characteristics.

If you’d like to discuss the budgeting cycle and how to plan for it, contact our Managing Partner, Mark Levit at 212.696.1200 now.

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