Does Lag Structure Really Matter in Optimizing Advertising Expenditures?

In this article, we examine whether a better econometric specification of the sales-advertising relationship leads to significantly improved decisions. Extending the pioneering work of Nerlove and Arrow, we analyze the sensitivity of the discounted profit flow to the dynamics of advertising. On the basis of a generalized variant of their constant-elasticity model, we compare various lag structures, and derive the corresponding decision rules to determine the optimal advertising budget. Financial consequences of misspecifications of the distributed-lag function are then evaluated. Our investigation is empirically illustrated on the basis of the data which served Palda for his demonstration of advertising cumulative effects.advertising, generalized lag structure, optimization

A Model of a Distribution Network Aggregate Performance

A model to evaluate distribution network performance is developed extending earlier work by Hartung and Fisher [Hartung, P. H., Fisher, J. L. 1965. Brand switching and mathematical programming in market expansion. Management Sci. 11 (10, August) 231-243.]. Our model differs on two counts: (1) it explicitly considers market dynamics and (2) the transition probability functions are robust. It is applied to describe the competitive position of a brand of gasoline on the Italian retail market.