Question

Discuss the limitations of allocating the market budget proportional to sales volume over several sales territories. What approach would you recommend in lieu of proportional allocation?

Answer 1

Below are the limitations of allocating the market budget proportional to sales volume over several sales territories:

1. Segmentation of territories: It is difficult to segment territories and allocate budget to each territory based on that. Hence proper care must be taken while segmentation and allocation of budget.

2. Sales volume can increase or decrease and budget allocation is done beforehand. Hence if the sales volumes are not increased then the company might suffer losses as well.

3. Scheduling and operational challenges: There are other challenges in the form of scheduling and cost incurred for that plus operational challenges related to budget allocation which hampers the process.

In lieu of proportional allocation, it is recommended to do proper maeket research and competitor analysis in different sales territories and be cognizant of external factors as well before allocating budget. Such an approach works well for complex territories and accurate determination of budget in these territories based on all such factors.