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Selling the Marketing Budget
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Selling the Marketing Budget

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The methods for setting the advertising budget haven't really changed in the last 30 years. It seems that advertising as a percentage of sales is by far the most popular methodology (53% of companies …

The methods for setting the advertising budget haven't really changed in the last 30 years. It seems that advertising as a percentage of sales is by far the most popular methodology (53% of companies use this approach according to the most recent study quoted).

This corresponds to our own experience. It is surprising how frequently simple and very crude rules like these are used to make decisions on millions of dollars of advertising budgets by some of the biggest companies in the world. More scientific methods like econometric modeling have been around for decades but companies seem to struggle to incorporate them in the decision making process. Econometric modeling is often seen as a black box and too hard to understand. For these reasons many companies who even invested heavily in econometric modeling revert to very basic rules such as advertising to sales ratios when the actual budgeting decisions were being made. This is a real shame. The fact that rules such as advertising to sales ratios are easier to explain doesn't mean they are better for decision making. And it certainly doesn't mean that they should replace more scientific approaches.


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