The percentage is worked out on the basis of a firm’s historical budget, industry norms or on the basis of the prevailing market conditions. If the market has started an upward trend then one percent extra amount will be put for advertising budget. Following this method without considering market conditions may create problem. If the firm’s market share is in a downward trend then the firm may decide to increase the advertising budget. If the product is in the disinvestment stage, then disinvestment may be an option. In such a case only marginal advertising budget is sufficient to clear the stock. If the firm realizes that at the decline stage the competitors are moving out then the firm can decide to take the leadership position through aggressive advertising.
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