IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Optimal Advertising Expenditure

Listed author(s):
  • Maurice W. Sasieni

    (Unilever, Limited, London, England)

Registered author(s):

    This paper discusses the optimal rate of advertising expenditure given the relationship between the rate of change of sales and the rate of expenditure. It is shown that we may assume that the marginal return of increased expenditure is never increasing. This is because when marginal returns increase there is always a "mixed" pattern in which two levels of expenditure are used, each for infinitesimally short intervals, with the property that the average cost for a given sales change is lower than with a fixed policy, and marginal returns are constant. If we assume that marginal returns do not increase, then, provided it is profitable to advertise, there exists an over-all optimal sales rate and an expenditure level, just sufficient to maintain it, with the following properties with respect to long-run discounted profits:-- (1) If sales even reach this level it is optimal to keep them there. (2) Starting from any other level, the optimal policy is to spend in such a way as to drive sales towards this level. The only requirements for these results are that the cost of achieving a given change in the sales rate be an increasing function of the sales rate and the rate of change of sales rate. It is also shown that the optimal sales rate to be maintained in the long run is not the rate which maximises the rate of gaining profit after advertising, unless the discount rate is zero. In practice, the mixed policy cannot be followed because discreet changes in expenditure levels cannot be made too frequently. When a mixed policy is optimal the best we can achieve is to use a cyclic policy in which we advertise for short intervals at each of the appropriate levels. A simple example calling for such a policy is when we have an advertising threshold below which expenditure has no effect, together with a relatively small market with low profit margins. Whether or not advertising thresholds exist requires psychological theory or controlled experimentation beyond the scope of this paper.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 18 (1971)
    Issue (Month): 4-Part-II (December)
    Pages: 64-72

    in new window

    Handle: RePEc:inm:ormnsc:v:18:y:1971:i:4-part-ii:p:p64-p72
    Contact details of provider: Postal:
    7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA

    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:18:y:1971:i:4-part-ii:p:p64-p72. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.