The Marketing Book 5th Edition

428 The Marketing Book

fact that they can be grouped into the four
categories in Table 17.2. The descriptions
under each group heading are examples of the
general method in question, using the termi-
nology in common use.
The application of executive judgementmay
seem an unacceptably vague and risky
approach to such an important decision. How-
ever, we shall see that the other methods
available to decision makers are themselves
illogical, inflexible, based on large assumptions,
or all three. Therefore, though the everyday
descriptions of this approach to the task hardly
inspire confidence, the accumulated wisdom
and intuition of experienced practitioners
should not be undervalued.
The best known internal ratiois advertising-
to-sales, which sets the appropriation at a given
percentage of either the previous year’s figure or
the forecast for the coming year. It has the
respectability of being an arithmetic formula,
but suffers the serious logical flaw that the ratio
itself must be decided before the method can be
used. In practice, that is normally done by the
application of executive judgement or by refer-
ence to industry norms, which may not be

appropriate to the particular circumstances.

Furthermore, it is potentially disastrous to apply

this method when sales have been falling. If the

purpose of advertising is to help generate sales,

then spending a constant ratio of a decreasing

amount is a curious way to go about rectifying

the situation.

The most familiar external ratio is com-

petitive parity, which matches the appropria-

tion to the estimated expenditure of a

significant competitor or to the prevailing

norm, with the aim of buying a fair share of

voice in the general advertising hubbub. The

more everyone follows everyone else, the less

logical it is to believe that competitors are

behaving rationally or the collective wisdom is

correct. Furthermore, the method takes no

account of the need for a new entrant to a

market to take the risk of disproportionately

heavy expenditure to gain a foothold.

The reliability of the many proprietary

modelling and experimentation procedures

depends upon the assumptions made and

formulae used, and the average practitioner

lacks the mathematical sophistication to evalu-

ate those. Using them is in that case rather like

Table 17.2 Methods for determining the promotional appropriation

Executive judgement Internal ratios External ratios Modelling and

experimentation

AYCA = all you can

afford

Affordable approach

Arbitrary method

Notional sum

A/S ratio = advertising-

to-sales ratio

Case rate

Historical parity

Inertia method

Marginal costing

approach

Per-unit allowance

Same as last year

Competitive parity

Dynamic difference

Market share method

Share of voice

Adstock

AMTES = area

marketing test

evaluation systems

Econometrics

Prescriptive models

Simulation

What-if models