Justifying Advertising Expenditures

In 2019, Amazon spent an estimated $6.9 billion on advertising in the United States; Comcast Corp. spent $6.1 billion; AT&T spent $5.5 billion; Procter & Gamble spent $4.3 billion; and Walt Disney Co. spent $3.2 billion. In fact, as noted in the Leading National Advertisers Fact Pack of Advertising Age (July 13, 2020), 47 companies reportedly spent over $1 billion each on their year-2019 national advertising budgets! (Note: These numbers do not include expenditures for other elements of the promotional mix, such as consumer- and trade-based sales promotion, direct selling, publicity, and so on.)

It should be acknowledged that for some firms (such as Procter & Gamble), the dollar amount reflects the sum of advertising budgets for a multitude of branded products the company sells. But this is certainly not the case for all the advertisers listed in Advertising Age’s “Leading National Advertisers Top 200” (for example, Home Depot, State Farm Insurance, Wayfair, and so on). And even individual P&G brands (such as Tide detergent and Pampers diapers) often have advertising budgets in the tens of millions of dollars.

How can any firm—large, small, local, or national—justify the amount of money it spends on its advertising? For example, if McDonald’s decided to discontinue all advertising during the month of November, should it expect some detrimental effect? If it were to boost its November ad budget, should the company expect a more favorable return on its investment? Can the advertising budgets of American firms be justified? What do you think?

Simply, do the following:

• Write your commentary in support of or against the amount of money being spent on advertising by firms/ organizations in the United States today. You can discuss American firms in general, or you can pick a single firm as the focus of your commentary.
• In your professional opinion, is too much, too little, or an appropriate amount of money budgeted for advertising these days?
• What “budgeting techniques”: percentage of sales/all you can afford/arbitrary allocation/competitive parity/Objective and taskdo you think these firms (or your select firm) employ? What makes you believe so?
• What “budget considerations” (discussed in the video lectures/ presentations) might be an influencing factor? How so?

Budget Considerations:

1. Company policies & procedures often dictate the amount spent and method employed.
2. Your advertising budget (ad dollars spent) is not the only factor influencing sales.
3. “Sales” is not the only factor that is affected by the amount of money you spend on advertising.
4. It is difficult to estimate a sales-response function curve (i.e., to establish an “ad expenditure / sales” relationship.
5. The “advertising expenditure to sales” relationship is dynamic (ever-changing).
6. Budget effects: Non-linear effect/Threshold effect/Carry-over effect/Decay effect/Competitor effect/Quality effect.

• Make sure that your commentary is derived from a “business” (not a “consumer”) perspective!
• Justify your position.

The criteria used to grade/evaluate this assignment include:

• Evidence of knowledge/understanding of budgeting techniques
• Evidence of knowledge/understanding of budget considerations
• Ability to justify the position taken
• Your written document must be a minimum of 500 words, double-spaced, in Times New Roman, 12 pt. font.