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A Micro-Modeling Approach to Determine the Advertising-Sales Relationship, Management Science

Abstract

The purpose of this paper is to derive a model of advertising effects on the firm's sales. A micromodel is postulated and aggregated across individuals and over time to produce a macromodel of the aggregate sales-advertising relationship for a single product. The micromodel postulated is very simple. It incorporates two factors: reach of the ads and rate of decay of their effectiveness over time. This approach to modeling advertising effects is shown to be fruitful in several respects: (1) the coefficients of the aggregate equation are easily interpretable -- in terms of the reach and decay parameters; (2) the model derived is nonlinear yet estimable; (3) a special case of the model is very similar to lag models that have been in use; (4) the model can be used whatever the unit of time is; (5) the carryover effect of advertising (as commonly defined) is not constant, but depends upon the previous spending levels; and (6) the model helps illustrate that the duration of advertising may be greatly overstated if aggregate lagged dependent variable models are simplistically interpreted.

Type

Article

Author(s)

Robert Blattberg

Date Published

1981

Citations

Blattberg, Robert. 1981. A Micro-Modeling Approach to Determine the Advertising-Sales Relationship. Management Science. 27(9): 988-1005.

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