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Does Lag Structure Really Matter in Optimizing Advertising Expenditures?

Author

Listed:
  • Alain V. Bultez

    (Faculte Universitaire Catholique de Mons (FUCAM), Belgium, and European Institute for Advanced Studies in Management, Brussels)

  • Philippe A. Naert

    (University of Antwerp, Belgium, and European Institute for Advanced Studies in Management, Brussels)

Abstract

In this article, we examine whether a better econometric specification of the sales-advertising relationship leads to significantly improved decisions. Extending the pioneering work of Nerlove and Arrow, we analyze the sensitivity of the discounted profit flow to the dynamics of advertising. On the basis of a generalized variant of their constant-elasticity model, we compare various lag structures, and derive the corresponding decision rules to determine the optimal advertising budget. Financial consequences of misspecifications of the distributed-lag function are then evaluated. Our investigation is empirically illustrated on the basis of the data which served Palda for his demonstration of advertising cumulative effects.

Suggested Citation

  • Alain V. Bultez & Philippe A. Naert, 1979. "Does Lag Structure Really Matter in Optimizing Advertising Expenditures?," Management Science, INFORMS, vol. 25(5), pages 454-465, May.
    • Handle: RePEc:inm:ormnsc:v:25:y:1979:i:5:p:454-465
    DOI: 10.1287/mnsc.25.5.454
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    Cited by:

    1. Karen Gedenk & Henrik Sattler, 1997. "Preisschwellen und Deckungsbeitrag - Verschenkt der Handel große Potentiale?," Working Paper Series A 1997-04, Friedrich Schiller University of Jena, School of of Economics and Business Administration.
    2. Karen Gedenk & Henrik Sattler, 1999. "Preisschwellen und Deckungsbeitrag — Verschenkt der Handel gro Potentiale?," Schmalenbach Journal of Business Research, Springer, vol. 51(1), pages 33-59, January.
    3. Norris I. Bruce, 2008. "Pooling and Dynamic Forgetting Effects in Multitheme Advertising: Tracking the Advertising Sales Relationship with Particle Filters," Marketing Science, INFORMS, vol. 27(4), pages 659-673, 07-08.

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