Biomedical Engineering Reference
In-Depth Information
Given the large gap between normative budgeting theory and practice, it is
important to understand which rules pharmaceutical managers use to determine the
marketing budget and which factors influence these decisions. The literature on
actual budgeting behavior in general is scarce; it is almost nonexistent with respect
to the healthcare industry. Most studies survey managers about their decision rules.
Only a few studies try to infer budgeting practices and influential factors from real
decisions.
19.2.1
Findings from Management Surveys
Managers have been surveyed for their budgeting behavior as early as in the 1960s
(Hurwood 1968 ). Latest results are available from surveys in China (Prendergast
et al. 2006 ) and Australia/New Zealand (West and Crouch 2007 ). Researchers have
noticed a growing sophistication in the use of budgeting rules over the years (e.g.,
Blasko and Patti 1984 ; Mitchell 1993 ). Sophistication means that management
moves away from simple heuristics such as percentage-of-sales towards the appli-
cation of objective-and-task rules or even modeling approaches (Piercy 1987 ). The
percentage-of-sales rule assumes a certain percentage of past or anticipated sales to
be spent on marketing. Objective-and-task rules follow the idea to set the budget so
that a specified target such as market share or profit contribution is achieved in the
planning period. Modeling approaches do this in a more formalized way and usu-
ally employ marginal analysis to find the optimal budget. In addition, research sug-
gests that the process of budget setting is highly complex and substantially
influenced by norms, politics, and negotiation capabilities (e.g., Fischer 2011b ;
Piercy 1987 ).
Wagner and Fischer ( 2011 ) summarize the results of 26 survey studies on bud-
geting behavior. This summary reveals that the percentage-of-sales method is by far
the most often used heuristic. The objective-and-task method also exhibits a high
frequency followed by rules that are competitor-oriented (e.g., match competitors).
The results are based on respondents from many industries including the pharma-
ceutical industry. Unfortunately, to the best of my knowledge, no survey study is
available that investigates budgeting behavior in pharmaceutical firms only. Eight
out of the 26 studies reviewed in Wagner and Fischer ( 2011 ) explicitly mention that
they include respondents from the healthcare industry. On average, these studies
report that 47 % of firms use the objective-and-task method, 38 % the percentage-
of-sales method, and only 15 % the competitive parity rule.
Management surveys offer valuable insights into budgeting practices, but they
are also limited. Findings are subject to the subjective perception and interpretation
of budgeting practices by surveyed managers. Since often only one manager is
asked for his/her evaluation the responses do not fully reflect a process that is in fact
influenced by many more people. Econometric models that relate actual product
budgets to potential influence factors can overcome these validity concerns.
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