Understanding the Timing and Magnitude of Advertising Spending Patterns

Abstract

Notwithstanding the fact that advertising is one of the most used marketing tools, little is known about what is driving (i) the timing and (ii) the magnitude of advertising actions. Building on normative theory, the authors develop a parsimonious model that captures this dual investment process. They explain advertising spending patterns as observed in the market, and investigate the impact of company, competitive, and category-related factors on these decisions, thereby introducing the novel concept of Ad-sensor. Analyses are based on a unique combination of (i) weekly advertising data on 748 CPG brands in 129 product categories in the UK, (ii) household panel purchase data, and (iii) data on new product introductions. The analyzed brands include both large and small brands, both frequent and infrequent advertisers, thus providing a morecomplete and correct overview of the market. The results show that advertising spending patterns can be explained as real-life applications of the normative literature, in which advertising andadvertising goodwill management are embedded in dynamic (s,S) inventory systems. Adstock and Ad-sensor show a positive effect on both timing and magnitude decision. Competitive reasoning is found to have little to no effect on advertising decisions, whereas category-related factors do show an impact. The extent to which campaigning strategies are more or less the outcome of advertising goodwill management systems, however, varies across brands as a function of their relative size and advertising frequency.