Wright, Malcolm (2008): A new theorem for optimizing the advertising budget.
This is the latest version of this item.
Download (103kB) | Preview
This paper reports a new theorem and proof for optimizing the advertising budget. The theorem is that the optimal rate of advertising is equal to gross profit multiplied by advertising elasticity. This does not involve a ratio of elasticities, and so is an advance on the Dorfman-Steiner theorem that has dominated this topic for the last 50 years. The elegant nature of the proof makes it especially suitable for managerial economics textbooks. The simple nature of the theorem means that it is easily adopted, by both large and small businesses, in place of heuristics such as industry advertising to sales ratios. From meta-analysis, the mean advertising elasticity is .11. Therefore, in the absence of any other information, companies should spend 11% of gross profit on advertising.
|Item Type:||MPRA Paper|
|Original Title:||A new theorem for optimizing the advertising budget|
|Keywords:||Advertising, Optimization, Budgeting, Theorem, Proof|
|Subjects:||M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing
M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M37 - Advertising
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis
|Depositing User:||Malcolm Wright|
|Date Deposited:||19. Sep 2008 10:40|
|Last Modified:||12. Feb 2013 16:45|
Bolton, Ruth N (1989), "The Robustness of Retail-level Price Elasticity Estimates," Journal of Retailing, 65 (2), 193-219.
Brook, Stacey, (2005), “Is the Dorfman-Steiner Rule Always Optimal?” The American Economist, 49, 2 (Fall), 75-77.
Danaher, Peter, Bonfrer, Andre. and Sanjay Dhar, (2008), “The Effect of Competitive Advertising on Sales for Packaged Goods,” Journal of Marketing Research, XLV (April), 211-225.
Dorfman, R. & P. Steiner, (1954), "Optimal Advertising and Optimal Quality," American Economic Review, 44, 826-836.
Lodish, Leonard M, Magid Abraham, Stuart Kalmenson, Jeanne Livelsberger, Beth Lubetkin, Bruce Richardson, and Mary Ellen Stevens (1995), "How T.V. Advertising Works: A Meta-Analysis of 389 Real World Split Cable T.V. Advertising Experiments," Journal of Marketing Research, 32 (May), 125-39.
Sethuraman, Raj and Gerard J Tellis (1991), "An Analysis of the Tradeoff Between Advertising and Price Discounting," Journal of Marketing Research, 28 (May), 160-74.
Available Versions of this Item
A new theorem for optimizing the advertising budget. (deposited 18. Sep 2008 09:29)
- A new theorem for optimizing the advertising budget. (deposited 19. Sep 2008 10:40) [Currently Displayed]