Advertising vs sales promotion: a brand management perspective
| Pages | 389-414 |
| DOI | https://doi.org/10.1108/10610420010356984 |
| Published date | 01 November 2000 |
| Date | 01 November 2000 |
| Author | George S. Low,Jakki J. Mohr |
| Subject Matter | Marketing |
Advertising vs sales promotion:
a brand management
perspective
George S. Low
Assistant Professor of Marketing, M.J. Neeley School of Business,
Texas Christian University, Fort Worth, Texas, USA
Jakki J. Mohr
Associate Professor of Marketing, School of Business Administration,
University of Montana, Missoula, Montana, USA
Keywords Brands, Advertising, Sales promotion, Decision making
Abstract Brand managers in packaged goods firms are under pressure to increase or
maintain high sales promotion spending at the expense of media advertising. This study
investigates the antecedents and outcomes of brand managers' advertising and sales
promotion budget allocations by adopting a bounded rationality perspective. Based on
survey data collected from 165 brand managers in the USA, higher advertising (vs sales
promotion) allocations are associated with: single, relatively high priced brands in the
early phases of the product life cycle; and more experienced brand managers who are
subject to less retail influence. Also, brands with higher budget allocations to advertising,
relative to sales promotion, tend to have more favorable consumer attitudes, stronger
brand equity, and higher market share increases and profits. Managerial implications
and areas for future study are discussed.
The addictive power of promotion is such that manufacturers must devote ever
larger proportions of their marketing budgets to this ``short-term fix'' and ever
smaller proportions to the long-term health of their brands (Kahn and McAlister,
1997, p. 20).
Research showing evidence of the risks of high sales promotion spending is
starting to appear (e.g. Mela et al., 1997; Papatla and Krishnamurthi, 1996),
as managers in many grocery products firms try to reduce their mammoth
sales promotion budgets. Procter & Gamble led the way by cutting trade
promotion spending dramatically and adopting an everyday-low-price
strategy (Reitman, 1992). P&G and other companies are now trying to wean
consumers off coupons (Narisetti, 1997; Schrage, 1996).
Despite these and other, less-publicized efforts to cut the billions spent on sales
promotions every year, manufacturers continue to allocate almost 75 per cent of
their marketing communications budgets to these short-term activities (Tenser,
1996). A.C. Nielsen estimates that trade promotion spending increased to 58
percent of total advertising and sales promotion expenditures in 1995, compared
with 50 per cent in 1991 (Mathews, 1996). It is surprising that brand managers
continue to allocate such a large proportion of their marketing budgets to sales
promotion at the expense of advertising even as the potential problems
associated with this strategy are becoming more widely known.
The current issue and full text archive of this journal is available at
http://www.emerald-library.com
The authors gratefully acknowledge the financial support from the Marketing
Science Institute, the College of Business at the University of Colorado-Boulder, and
the Charles Tandy American Enterprise Center at Texas Christian University. In
addition, they appreciate the encouragement and helpful comments of David Olson
(Leo Burnett Advertising), Katherine Jocz, Rick Staelin, and Paul Root (MSI) and
David Cravens (TCU).
Risks of high spending
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000, pp. 389-414, #MCB UNIVERSITY PRESS, 1061-0421 389
An executive summary for
managers and executive
readers can be found at the
end of this article
Previous empirical research on advertising and sales promotion budgeting
has examined the relationship between product and market characteristics
and advertising/sales ratios (Farris, 1977; 1978; Lancaster, 1986), promotion/
sales ratios (Quelch et al., 1984), and advertising-and-promotion/sales ratios
(Balasubramanian and Kumar, 1990; Fader and Lodish, 1990; Farris and
Albion, 1980; Farris and Buzzell, 1979). The amount budgeted to advertising
and promotion relative to sales is an important issue. The findings from this
research indicate that a variety of product and market factors (such as market
growth rates, market share, competitive activity, and a product's relative
price) are significantly related to advertising and/or sales promotion
spending levels. However, none of these studies examines the firm's relative
allocation to advertising versus sales promotion. The relative allocation issue
is critical for many brand managers today whose budgets are flat or
declining, and who must make trade-offs in deciding how to best allocate
scarce marketing communications resources. For example, according to 1998
national US media spending figures, ten of the largest packaged goods
advertisers actually decreased their overall advertising spending vs 1997
(Advertising Age, 1999). These included national brand manufacturers
Procter and Gamble (±3.4 per cent), Philip Morris (±4.1 per cent), Bristol-
Myers Squibb (±22.3 per cent), Johnson and Johnson (±11.3 per cent), Mars
Inc. (±11 per cent), Kellogg Co. (±19.7 per cent), Hershey Foods (±7.4 per
cent), Colgate-Palmolive (±4.7 per cent), Quaker Oats Co. (±5.1 per cent),
and Nabisco (±3.9 per cent). Mantrala et al. (1992, p. 173) suggest that sales
and profit are more sensitive to the way a budget is allocated than to its
overall level; they comment that ``more behavioral research on how
marketing organizations approach allocation decisions as opposed to
investment-level decisions is needed''. Surprisingly, this call for research on
allocation decisions has gone largely unheeded.
As stated earlier, most prior research on the advertising and sales promotion
budget issue has focused on understanding factors that are related to the ratio
of marketing communications spending to sales. In our analysis of this
research, two significant issues arose. First, many extant advertising and
sales promotion studies have emphasized market growth rates and market
share as predictors of advertising and sales promotion spending
(Balasubramanian and Kumar, 1990). Indeed, the recent series of articles on
this topic (Ailawadi et al., 1994; 1997; Balasubramanian and Kumar, 1997a;
1997b) focused more on technical issues of data analysis than on substantive
questions about the underlying theoretical framework and managerial issues.
Lost in this dialogue is a potentially important suggestion:
Efforts would be better spent searching for other variables [in addition to market
share and market growth rates] that can do a better job of explaining advertising-
and-promotion/sales ratios (Ailawadi et al., 1994, p. 97).
Our review of the relevant literature suggests that research is needed on
variables which are actionable by management, since market share and
growth, for the most part, are not. Commenting on past research on
advertising and promotion budgeting decisions, Stewart (1996) called for the
inclusion of more decision-making variables such as stage of the product life
cycle. Stewart further suggested that the firm- and SBU-level PIMS and
Compustat data used in previous studies lead to potentially misleading
conclusions ± the appropriate unit of analysis should be the brand.
A second crucial issue in understanding brand-level advertising and sales
promotion budgets is the fact that the perspective of the people who make the
allocation decision ± brand managers ± has mostly been left out of prior
Budget an important issue
Two significant issues
390 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000
To continue reading
Request your trial