ADVERTISING EXPENDITURE TRAJECTORIES: AN EMPIRICAL STUDY FOR FILTER CIGARETTES 1953–1965

In: Decision sciences, Band 7, Heft 3, S. 496-507

Abstract

ABSTRACTIn an advertising strategy, it is preferable to optimize a sequence of periodic decisions, rather than optimizing each period's decision separately. Thus, a dynamic technique such as optimal control, which is used in this study, should be employed. Necessary conditions, as inferred from a parsimonious advertising model, are tested using data from the tobacco industry. Parameter estimation involves the use of non‐linear regression. The estimates permit trajectories of optimal advertising expenditures and optimal market shares to be constructed for filter cigarettes. When compared with the actual trajectories, the optimizing trajectories exhibit a striking correspondence to reality. Therefore, interesting results can be obtained using a simple model, provided the optimizing method takes into account the dynamic nature of managerial decision‐making and provided powerful methods for estimating model parameters are used.