Research Reveals How Marketers Can Orchestrate Regional and National Ad Budgets to Generate Optimal Returns

CHICAGO, Jan. 6, 2012 /PRNewswire-USNewswire/ -- New research published in the December issue of the American Marketing Association's Journal of Marketing Research shows how a new budget allocation approach helped take the mystery out of one Fortune 500 cosmetic company's regional ad investments and improved its returns.

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Recognizing that managers often do not optimally allocate their ad resources at national and regional levels, researchers and study authors Ashwin Aravindakshan and Prasad Naik of the University of California Davis, and Kay Peters of the University of Muenster, developed an ad investment model that showed the company how reallocating its ad budget could improve profits by more than 5% using the new approach rather than its current approach. The company's existing approach, the authors say, followed the popular brand development index (BDI) model, which measures the sales strength of a brand but does not quantify the impact of advertising on national and regional sales or help determine the optimal total ad budget to invest. 

To overcome these drawbacks, the authors developed a model that not only accounts for how advertising in one region will impact sales in an adjacent region, but also how advertising in one period will impact sales in future periods. The model also incorporated the effects of regional advertising and the spillover from national advertising. Even after accounting for uncertainty, the resulting model yielded a 5.07% profit improvement over existing methods, resulting in several million dollars in profit increase. Moreover, the authors say the results remain robust across several scenarios.

The authors say the pressure CMOs feel to get the best ROI from investments motivated their research. "The BDI approach is commonly used despite its known drawbacks with respect to optimizing ROI. Given the huge advertising budgets invested annually and the high pressure on CMOs to squeeze the most out of it, we address their need and provide them with a state-of-the-art tool to do just that – improve their bottom lines."

The results can help marketers to create and invest regional ad budgets more effectively and increase profits. Further details and recommendations can be found in the article "Spatiotemporal Allocation of Advertising Budgets" in the December issue of the Journal of Marketing Research.

About the American Marketing Association:
The American Marketing Association (AMA) is the professional association for individuals and organizations who are leading the practice, teaching, and development of marketing worldwide. Learn more at marketingpower.com.

Contact: Christopher Bartone – 312.542.9029 – [email protected]

SOURCE American Marketing Association