Explanation : The following points highlight the top five methods of determining an advertising budget listed by Joel Dean. The methods are: (i) The Percentage of Sales Approach: In this method, the sales value of the preceding year is first taken and then the expected sales during the year in question are arrived at. Thereafter, some percentage of the expected sales is considered and this is known as the percentage of sales approach. This method was dominant in the past and even now it is widely used. It may be a fixed percentage or a percentage that varies with conditions of sales. The method is simple in calculation. In this method, a clear relationship exists between sales and advertising expenses. By adopting this method advertisement war can be avoided. It leads to a budget set by the availability of funds rather than by market opportunities. (ii) The All-You-Can Afford Approach: Under this approach, a company spends as much on advertising as it can afford. From the name itself, it is clear that the affordable amount set aside for advertising is known as affordable method. This approach appears to be more realistic, for all companies generally spend that much amount on advertisements which they can afford, even though they may not say so. (iii) The Return on Investment Approach: This approach treats advertisement as a capital investment rather than as a more current expenditure. Advertising has a two-fold effect, (a) It increases current sales: An increase in current sales involves such decisions as the selection of the optimum rate of output in order tomaximise short run profits. (b) It builds up future goodwill: The building up of goodwill for the future calls for a selection of the pattern of investment which is expected to produce the best scale of production, leading to the
maximum long-run profits.
This method emphasizes the relationship between advertisement and sales. Sales are measured with advertising and without advertising. The rate of return provides a basis for advertising budgeting, as the available funds will have to be distributed among various kinds of internal investment on the basis of the prospective rate of return. (iv) The Objective and Task Approach: This method is also known as the research objective method. This method calls upon marketers to develop their promotion budgets by defining their specific objectives, determining the tasks that must be performed to achieve these objectives and estimating the cost of performing these tasks. The sum of these costs in the proposed budget. This approach is an improvement over the percentage of sales approach. But the fundamental relationship between the objectives and the advertising media
again depends upon the past experience of the firm. In reality, tasks to be determined should be related to the objectives of the firm and to the past records of the firm. (v) The Competitive Parity Approach: This approach is nothing but a variant of the percentage of sales approach. A firm sets its budget solely depending upon the basis of competitors' expenditure. The advertising cost is decided on the basis of spending for advertising by the competitors in the same industry.
Two arguments are advanced for this method. One is that the competitors’ expenditures represent the collective wisdom of the industry. The other is that it maintains a competitive parity which helps to prevent or defend or safeguard promotion wars.
Explanation : Profitability index is an investment appraisal technique calculated by dividing the present value of future cash flows of a project by the initial investment required for the project.
Profitability index is sometimes called benefit-cost ratio too and is useful in capital rationing since it helps in ranking projects
based on their per dollar return. Formula:
(a) Profitability Index = PV of Future Net Cash Flows / Initial Investment Required
(b) Profitability Index = 1 + (Net Present Value / Initial Investment Required) Decision Rule
- Accept a project if the profitability index is greater than 1,
- Stay indifferent if the profitability index is 1,
- Don’t accept a project if the profitability index is below 1.
Explanation : MODELS OF MAN: A study of human behaviour is both rewarding and necessary to managers and management all over the world.
It is doubtful whether the management can perform its functions successfully without having understood why people behave as
they do. The fact remains that individual differences among people cause differences in their behaviour. Based on individual
differences among people, individuals are classified into certain models or types. The following are the important models of man
observed in the organisations:
(a) Rational Economic Man: This is the oldest model of man. The basic doctrine of this model is that man strives for earning more money in a rational manner. Thus, this model assumes that man can be motivated to produce more by providing more economic incentives as
is done in case of the piece-rate system of reward. But, it is important to mention that man works following the marginal
utility theory. Similarly, the organisation also continues to give employees incentives until it is receiving matching contribution from them. Beyond that, the organisation will not do so, because it will incur losses.
(b) Self-Actualising Man: This model is based on the assumption that man is self-motivated and controlled. These assumptions are mostly based on Mc GREGOR’s Theory economic incentives have their limitations in inducing man to work more. The man works more to satisfy his needs in hierarchical order as per ABRAHAM MASLOW’s Theory. So to say man is induced 10 make efforts to reach where he can. Then, the sense of achievement gives him satisfaction.
(c) Complex Man: The models discussed so far are based on relatively simplistic assumptions of man and his behaviour. These assumptions say that man behaves according to a certain pattern. But, it does not hold true in reality for e.g., MASLOW’s Need Hierarchy Theory
cannot be uniform for all individuals, but there can be overlapping in needs. As stated earlier, the Behaviour of individuals is caused and individual differences make it unpredictable. Given the two persons having the same needs, still, they may behave differently because the variables that determine human behaviour are themselves unpredictable. Thus, the human being is quite complex and so is his behaviour. Therefore, managers need to take clues for their managerial actions realising that no single action can be utilized successfully in all situations, but depending upon complexities of variables affecting human behaviour.
(d) Social Man: This concept is based on the assumption that man being a part of society is influenced and motivated by social variables. According to this model, man is induced more by his desire to maintain his social relationships and tips than economic motives. Added to this, men are more responsiveness to their group pressure and sanction. In fact, the human relation’s approach to management beginning from the famous HAWTHORNE STUDIES is also based on the concept of social man. Therefore, while dealing with individuals in organisations,
managers need to be concerned mainly with people’s feelings about their Belongingness to their groups and society.
(e) Organisation Man: This concept is attributed to WHYTE. In fact, the organisation man is an extension of social man. Organisation man assumes that man attaches high importance to the loyalty to his organisation and cordial relationship with his coworkers. Thus, this
concept sacrifices individuality for the sake of organisation. The reason being the organisation itself takes care of individual interest. Its implication for management is that management should design its various functions suitable to satisfy the organisational needs.
Explanation : In 1946, social psychologist Fritz Heider proposed balance theory. Balance theory is sometimes called P-O-X theory because it focuses on situations containing three elements (triads): the person (P), the other person (O), and the attitude object (X). Heider proposed that a person’s understanding of the relationships among P, O, and X was either “balanced” or “unbalanced”. Balanced is the term for consistency. (For example, the principle that “my enemy’s enemy is my friend” is balanced, because there is something consistent about liking the person who has attacked your enemy.) A sign, positive (+) or negative (–), is assigned to each relationship. To determine whether balance exists, simply multiply the signs together. If the outcome is positive, the cognitive structure is balanced (consistent). If the outcome is negative, it is unbalanced. For example, in Figure, you like In 1946, social psychologist Fritz Heider proposed balance theory. Balance theory is sometimes called P-O-X theory because it focuses on situations containing three elements (triads): the person (P), the other person (O), and the attitude object (X). Heider proposed that a person’s understanding of the relationships among P, O and X was either “balanced” or “unbalanced”. Balanced is the term for consistency. (For example, the principle that “my enemy’s enemy is my friend” is balanced, because there is something consistent about liking the person who has attacked your enemy.) A sign, positive (+) or negative (–), is assigned to each relationship. To determine whether balance exists, simply multiply the signs together. If the outcome is positive, the cognitive structure is balanced (consistent). If the outcome is negative, it is unbalanced. For example, in Figure, you like your social psychology professor, but you and your professor both hate exams (you hate taking them and your professor hates writing and grading them). If you multiply the signs together, the outcome is positive, so the structure is balanced. Balance theory states that balanced states are preferred over unbalanced states, and that unbalanced states motivate people to change them to balanced states.
Explanation : The expectancy theory was proposed by Victor Vroom of Yale School of Management in 1964. Vroom stresses and focuses on outcomes, and not on needs unlike Maslow and Herzberg. The theory states that the intensity of a tendency to perform in a particular manner is dependent on the intensity of an expectation that the performance will be followed by a definite outcome and on the appeal of the outcome to the individual. The Expectancy theory states that employee motivation is an outcome of how much an individual wants a reward (valence), the assessment that the likelihood that the effort will lead to expected performance (expectancy), and the belief that the performance will lead to reward (Instrumentality). In short, Valence is the significance associated by an individual about the expected outcome. It is expected and not the actual satisfaction that an employee expects to receive after achieving the goals. Expectancy is the faith that better efforts will result in better performance. Expectancy is influenced by factors such as possession of appropriate skills for performing the job, availability of the right resources, availability of crucial information and getting the required support for completing the job. Instrumentality is the faith that if you perform well, then a valid outcome will be there. Instrumentality is affected by factors such as believe in the people who decide who receives what outcome, the simplicity of the process deciding who gets what outcome, and clarity of the relationship between performance and outcomes. Thus, the expectancy theory concentrates on the following three relationships:
Effort-performance relationship: What is the likelihood that the individual’s effort be recognized in his performance appraisal?
Performance-reward relationship: It talks about the extent to which the employee believes that getting a good performance appraisal leads to organizational rewards.
Rewards-personal goals relationship: It is all about the attractiveness or appeal of the potential reward to the individual.