Advertising vs Sales Promotion: A Brand Management Perspective

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Advertising vs sales promotion: A brand management perspective
Article in Journal of Product & Brand Management · November 2000

DOI: 10.1108/10610420010356984
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Journal of Product & Brand Management
Advertising vs sales promotion: a brand management perspective
George S. Low Jakki J. Mohr
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George S. Low Jakki J. Mohr, (2000),"Advertising vs sales promotion: a brand management perspective", Journal of Product &
Brand Management, Vol. 9 Iss 6 pp. 389 - 414
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An executive summary for
managers and executive Advertising vs sales promotion:
readers can be found at the
end of this article 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).
Risks of high spending 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 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).
The current issue and full text archive of this journal is available at
http://www.emerald-library.com
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000, pp. 389-414, # MCB UNIVERSITY PRESS, 1061-0421 389
Budget an important issue 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.
Two significant issues 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
390 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

research. An understanding of the factors that influence brand managers'
decision-making processes as they balance a complex set of decision
variables in allocating marketing communications budgets would be an
important research contribution. In addition, their perceptions of outcomes
arising from the relative allocation are also important, given the current trend
for greater marketing communications efficiency and accountability.
Research gap It is apparent that a research gap exists concerning brand managers'
perceptions of relevant antecedents and outcomes of advertising and sales
promotion budget allocation decisions. To address this issue, we examine the
advertising and sales promotion allocation decision from the perspective of
brand managers. We predict the relationship between important product/
market and organizational/decision-maker characteristics and the relative
budget allocation to advertising and sales promotion at the brand level. In
addition, we extend prior research by exploring the brand-level
consequences of the relative allocation between advertising and sales
promotion, such as market share and profits. We first develop the conceptual
foundations and hypotheses for the study. Next, we explain our research
method and data collection efforts. Finally, we present the empirical results
and discuss their implications for marketing practice and future research.
Conceptual foundations and hypotheses

There are at least two theoretical approaches to studying resource allocation
decisions. The first is the classical economics view of decision-makers as
rational utility maximizers who allocate resources subject to a budget
constraint and uncontrollable market conditions such as competition, market
share and sales response functions (cf. Samuelson, 1970, Ch. 22). This
approach to studying resource allocations, based primarily on historical data,
has led to the development of powerful, prescriptive, analytical techniques and
models which focus on decision outcomes. The second of the two theoretical
approaches to studying resource allocation decisions was initiated by March
and Simon (1958), who argued that decision-makers will not always seek the
best possible solution, but will search until a reasonable solution is found. This
descriptive, bounded rationality approach acknowledges that managers use
their own biased judgment to make decisions, and are influenced by the
realities of organizational life (Mintzberg, 1978). This approach has the
potential to help us better understand the real-world, seemingly irrational
behavior of decision-makers who continue to allocate large proportions of
scarce marketing resources to sales promotions despite the widespread desire
to reduce such short-term spending. Accordingly, we selected bounded
rationality as the theoretical perspective for this study (for a more detailed
discussion of the contemporary theoretical perspectives on strategic decision
making, see Mintzberg et al., 1998).
Advertising vs sales promotion budget allocation

Important decision The advertising vs sales promotion budget allocation is defined as the
variables relative budget amount allocated to advertising compared to the budget
amount allocated to sales promotions (consumer and trade). This variable
captures the relative emphasis on long-term brand-building activities
(advertising) compared to short-term sales incentives (sales promotions) in
the brand's marketing communications mix (cf. Zenor et al., 1998). Because
advertising increases full-margin sales while sales promotion decreases unit
margins, these two tools are direct substitutes and therefore are traded off in
budgeting decisions (Tellis, 1998, p. 427), particularly when budgets are flat
or decreasing and costs are increasing. Since advertising and sales promotion
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 391

can be used to achieve similar marketing objectives in different ways,
managers are faced with a difficult decision when allocating funds between
them. We relied on past qualitative and exploratory descriptive research (e.g.
Low and Mohr, 1999; Strang, 1980; Robinson and Luck, 1964) to help us
select important decision variables. We also reviewed research that helped us
predict the outcomes of the advertising and sales promotion budget
allocation. The supporting logic for the predicted antecedent and outcome
relationships follows.
Product/market antecedent hypotheses

Consumer demand and Stage of the brand's product life cycle. The stage of the product life cycle for
competitive intensity a brand captures consumer demand and competitive intensity in the
marketplace (Catry and Chevalier, 1974). In the two early stages of a
product's life cycle (introduction and growth), advertising is used to inform
consumers about features and benefits, to strategically position a brand, and
to build awareness. Previous research (Farris, 1977) found that advertising
spending was positively related to the introduction and growth stages of the
product life cycle, and negatively related to the maturity stage. During the
mature phase of the product life cycle, intense competition can also lead
managers to shift funds away from advertising and into promotions as they
attempt to take market share from competitors (Sethuraman and Tellis,
1991). Hence, we predict that:

H1: In the latter stages of the product life cycle (maturity) compared to the
earlier stages of the product life cycle (introduction and growth), brand
managers allocate less of the marketing communications budget to
advertising relative to sales promotion.
Branding strategy Brand type. Brand type refers to the branding strategy used by a company for
a specific product line. Single or individual brands have unique brand names,
whereas family brands share a brand name with other product lines in the
same company (Aaker, 1996, Ch. 8). The brand type used in planning
advertising and sales promotions may affect budget allocations. Consider, for
example, Kraft General Foods' decision to feature the Kraft family brand
(e.g. Kraft cheeses, Kraft salad dressings) or single brands (e.g. Bull's Eye
barbecue sauce) in their Olympic Games sponsorship campaign (Friedmann,
1992). Family (or corporate) brands (i.e. Dole fresh fruit, Dole fruit juices,
and Dole dried fruit) may be more efficient to advertise than single (or
individual) product brands (i.e. Crest toothpaste and Tide detergent).
Advertising a family brand (which identifies the name of a group of
products, perhaps some in very different product categories) may require a
proportionately smaller allocation to advertising than a single product brand,
which may require more advertising to support its unique brand message,
image, and identity. Aaker (1996) states:
A corporate brand that is applied to many products also provides economies of
scale and scope in creating visibility and awareness, since the cost involved is
spread over multiple products and categories. Further, the name is exposed
wherever these products are advertised or sold. Multiple products therefore
translate directly into more exposure for the brand name (p. 117).
Economies of scale from family or corporate branding would not apply to
sales promotions to the same extent as advertising, since many common sales
promotions are variable costs. Accordingly, we predict that:
H2: For single brands, compared to family brands, brand managers allocate
proportionately more of the marketing communications budget to
advertising relative to sales promotions.

Relative price. There is supporting research evidence that the price of the
brand, relative to competitors' prices, is associated with the relative
allocation to advertising or sales promotion. Higher-priced products may
support larger allocations to advertising (Farris and Buzzell, 1979). When a
product has a high price relative to competing brands, it is likely to receive
more brand-building media advertising to support its higher-price position;
on the other hand, when a product has a lower relative price, it is more likely
to receive a greater allocation to sales promotions. Using sales promotions
too frequently may reduce consumers' reference prices, a risky consequence
for high-priced brands (Sawyer and Dickson, 1984). Consumers need to be
continuously reminded of a high-priced product's superior image, quality, or
prestige, a task ideally achieved by spending proportionately more on
advertising. This leads us to predict the following:
H3: A brand's relative price is positively related to brand managers'
advertising allocations relative to sales promotion allocations.
Relative allocation of the Market share. The focus of our study is not on the budget level, but on the
budget relative allocation of the budget to advertising compared with sales
promotion. Products with a high relative market share are less likely to
benefit from short-term share-building incentives such as consumer and trade
promotion because such actions would produce diminishing returns ± their

share positions are already strong and they have less to gain than low-share
brands. Hence, for market leaders, long-term market share maintenance
tends to be best served by allocating relatively higher proportions of
communications budgets to advertising, which is an effective tool for
establishing an image of leadership or dominance in a market (Aaker, 1991).
Another reason that advertising may be more likely than sales promotions to
produce economies of scale is that the cost of advertising at a given level is a
fixed cost that can be spread across a larger number of unit sales by large
market share firms. On the other hand, sales promotion is typically a variable
cost, so it may be more efficient for low-share brands to use sales promotion
than advertising. In fact, it can be cost-prohibitive for large-share brands to
match the sales promotions of smaller-share competitors because the cost of
the most common types of sales promotion is applicable to every unit sold.
Therefore, we anticipate that:
H4: Relative market share is positively related to brand managers'
advertising budget allocations relative to sales promotion allocations.
Organizational/decision-maker antecedent hypotheses

Decison-maker factors In addition to the product/market factors described above, the bounded
rationality perspective suggests that organizational and personal decision-
maker factors, which tend to bias decisions, also play a role in budget
allocations. There are three variables which appear to be related to the
relative budget allocated to advertising or sales promotion: the short- or
long-term perspective encouraged in the organization, the influence of
retailers, and the decision maker's experience.
Short-term perspective. Short-term perspective is defined as the degree to
which management in the respondent's firm emphasizes short-term goals and
objectives (one year or less), and encourages short-term results (Burke,
1984). Advertising can be viewed as a relatively higher-risk/higher-return
strategy than sales promotions which have an element of certainty to them
and whose results are more measurable using scanner data (Zenor et al.,
1998). When a firm encourages long-term decision-making that is inherently

risky, managers may be more likely to allocate proportionately more of their
budget to advertising. Farris and Quelch (1987, p. 64) aptly described the
biasing effect of short-term orientation on managers' budget allocation
decisions:
In fact, a short-term orientation, driven by top management's emphasis on
quarterly results, is the cause rather than the result of promotions used to boost
sales. A recent study (Quelch, Farris and Olver, 1987) indicated that 90 percent of
product managers would rather spend less time on short-term promotion and more
time on franchise-building advertising, but the top-rated managers were those who
spent more time on promotion, indicating that senior management is rewarding a
short-term orientation.
Reward systems Reward systems are frequently used as a way to encourage short- or long-
term results (Anderson and Chambers, 1985). With respect to budget
allocation decisions, a reward system that is oriented towards short-term
performance (annual or quarterly results) compared to one that focuses on
multiple-year measures, may influence brand managers to make decisions
that will stimulate short-term sales. In such a situation, consumer and trade
promotions are more likely to be emphasized, relative to advertising, because
of their immediate, positive, impact on sales (Blattberg and Neslin, 1990).
Hence:
H5: A brand manager's belief that, in his or her organization, short-term

results are more important than long-term results, is negatively related
to advertising allocations relative to sales promotion allocations.
Retail influence. We define retail influence as the degree to which retailers
attempt to use their power to increase sales promotion spending by
manufacturers. Grocery product retailers, whose margins are razor-thin, rely
heavily on the cash and discounts from sales promotions and slotting fees to
improve their profits (Kahn and McAlister, 1997). In a 1995 study by
McKinsey & Company on packaged goods salesforces, the authors
concluded that ``retailers are being forced to push back on manufacturers in
order to maintain their own narrow margins'' (DeVincentis and Kotcher,
1995). Murry and Heide (1998), in their study of retail participation in
promotion programs, found that financial incentives were more important to
retailers than other factors such as corporate or personal relationships in
encouraging participation in sales promotions. Retailers use their increasing
size and the power of information generated via scanner technology to
influence manufacturers, persuading them to divert greater amounts of their
communications budgets to sales promotions (Quelch, 1983). Unwillingly,
manufacturers have complied, acknowledging the fierce battle for shelf-
space and merchandising activity. Consequently, we posit that retailer
influence is negatively related to advertising spending, relative to sales
promotion spending.
H6: The degree of retailer influence is negatively related to brand managers'
advertising allocations relative to sales promotion allocations.
Dependence on judgment Decision-maker's experience. We define experience as the number of years a
or intuition manager has worked for his or her employer. Experience with the current
company is used rather than total career experience because we wanted to
control for situations where managers may have changed employers, thereby
changing industry categories, geographic locations, company procedures,
and perhaps even career paths. Managers often rely on insights from past
experience and their own personal intuition when making important business
decisions (Fraser and Hite, 1988). Simon (1987) proposed that experienced

managers make decisions by relying more on their judgment or intuition,
whereas inexperienced managers rely more on careful analysis. A recent
study based on interviews with marketing practitioners (Bucklin and Gupta,
1998) found that the assessment of advertising effects is more difficult for
managers than the assessment of sales promotion effects. Inexperienced
managers may allocate more resources to sales promotions because their
outcomes are more easily quantifiable; whereas experienced managers may
be more confident in allocating resources to advertising. Also, the need to
score short-term sales gains by using more sales promotions in order to
further their career advancement would be less important to senior managers.
Accordingly, we propose that:
H7: A manager's experience level with his or her current company is
positively related to advertising relative to sales promotion budget
allocations.
Outcomes of advertising and sales promotion allocations

Firm's budget allocation We now turn our attention to the outcomes of a firm's budget allocation
decision decision. As noted earlier, because of concerns about the consequences of
allocating large proportions of communications budgets to sales promotions,
we explore the relationships between advertising and sales promotion
allocations and managers' perceptions of profit, market share, brand equity

and consumer attitudes for their brands. In other words, does the allocation
of marketing communications budgets make a difference to the outcomes of
the decision? We acknowledge that the relationship between marketing
communication budget allocations and outcomes is complex, not only
because of the many variables that can affect outcomes, but also because of
the time lag between the allocation decision and the outcomes. For example,
the effects of a current advertising campaign may not be immediately
apparent. We attempt to address these issues by examining the relationship
between the prior year's actual budget allocation and the current year's brand
outcomes. We also control for company size and market growth rate. We
first review the effects of advertising and sales promotion separately, and
then we discuss the likely relationships between the advertising-sales
promotion budget allocation and brand performance.
Advertising effects. Based on single-source data, Abraham and Lodish (1990)
concluded that advertising has a greater impact on profits than either
consumer or trade promotions. They also suggested that because of a number
of problems associated with consumer and trade promotions, such as forward
buying and the inability of many promotions to cover the profits that would
have been generated with baseline sales, advertising is more profitable. This
conclusion was also reached by Jones (1990, p. 148) who determined that
``manufacturers that promote heavily are deliberately exchanging profit for
volume; in other words, making less profit on more sales''.
The impact of advertising The impact of advertising on consumer attitudes and brand equity has been
studied extensively. The power of advertising in building strong brands has
been proposed by marketing practitioners (e.g. Martin, 1989) and academics
(Aaker, 1991; 1996). Most advertising dollars are directed at consumers and
typically are accompanied by specific objectives to improve consumer
attitudes (Quelch, 1989). By building a strong position in the market,
advertising allows a firm to command higher prices for its products, and thus
increase profits. This rationale is borne out by studies on the effects of
advertising on consumer attitudes (e.g., Alden et al., 1999; Wansink and
Ray, 1996). Aaker (1991) and Shimp (1997) propose that higher relative

spending on advertising can generate favorable consumer attitudes towards
the advertised product.
Increase in research activity Sales promotion effects. The increased usage of consumer promotion by
marketers has been accompanied by an increase in research activity to
determine the impact of such promotions. The most consistent finding is that
consumer promotions increase unit sales and market share of the promoted
brand (Gupta, 1988). Although these findings seem somewhat obvious, since
consumer promotions typically take the form of price reductions, research
has provided additional insight. For example, consumer promotion research
has found that coupons have a greater impact on sales than an equivalent
reduction in price (Cotton and Babb, 1978).
Although the impact of consumer promotions on consumer attitudes has yet
to be resolved, a number of plausible explanations have been offered for a
potential negative relationship (Blattberg and Neslin, 1990). These include
self-perception theory (Dodson et al., 1978), dissonance theory (Doob et al.,
1969), and attribution theory (Sawyer and Dickson, 1984). The common
conclusion of these authors is that the use of consumer promotions too
frequently over an extended period of time may lead to less favorable
consumer attitudes toward the brand.
Outcomes of trade An increasing number of studies are investigating the outcomes of trade
promotion promotion. Because trade promotions frequently take the form of price
reductions, the result is increased unit sales and market share (Hardy, 1984).
In addition, information providers such as IRI and Nielsen have used
sophisticated modeling techniques and single-source data to show that trade
promotions increase unit sales (Honnold, 1992). Quelch (1983) suggests that
the relationship between the use of trade promotion and market share is so
basic that the success of trade promotions should be measured by the
resulting share increase. Managers are more likely to respond to a
competitor's increased trade promotion activity compared to increased
advertising activity since trade promotion has a more immediate impact
on market share, an important standard for many brand managers. They rely
on trade promotions because they expect to see an immediate increase in
market share. Conversely, recent studies have consistently concluded that
excessive use of trade promotion decreases brand loyalty, increases price
sensitivity, and reduces baseline sales for a brand (Mela et al., 1997; 1998;
Papatla and Krishnamurthi, 1996). These studies point to the negative
potential impact of sales promotion spending on profits, consumer attitudes,
and brand equity.
Effects of relative allocation to advertising vs sales promotion. Based on
the review of the individual effects of advertising and sales promotion
discussed above, we expect that when budgets are allocated so that relatively
more funds are spent on advertising and relatively fewer on sales
promotions, consumer attitudes, brand equity, and profit will be higher, and
market share will be lower compared to brands with relatively fewer funds
allocated to advertising and more to sales promotion. Accordingly, we
predict that:
H8: High relative advertising and low relative sales promotion budget
allocations are associated with perceptions of:
(a) higher consumer attitudes;
(b) higher brand equity;
(c) lower market share; and
(d) higher profit.

Method
Context and sample
A survey method was selected in order to isolate brand-level budget
allocations, to measure organizational and decision-maker variables, and to
accurately represent the perspective of the brand manager prescribed by
bounded rationality theory. Although we recognize the potential bias
involved in paper and pencil measurement techniques, many of the variables
in our study are, by their very nature, psychological perceptions of reality.
For example, the influence of retailers in the decision process would be
difficult or impossible to quantify using other methods. And, consistent with
the theoretical approach adopted in this research, we wanted to tap into the
perceptions of brand managers in order to understand this important
allocation decision based on the position that their decisions are boundedly
rational. Indeed, it is managers' perceptions of reality that determine their
decision-making behavior, not reality itself (cf. Anderson et al., 1987). In
addition, secondary data available from companies such as Compustat and
A.C. Nielsen, or published in AdWeek or Progressive Grocer include only
some of the brand-level data required in our study. For example, none of
these sources provide measures of the manager's experience level, retailer
influence, or brand attitudes.
Brand managers as agents Hence, we focused on brand managers as agents for their brands. Our intent
was to understand better the decision process factors and potential biases
involved in the allocation of marketing communications budgets from their
perspective. Furthermore, brand managers are the individuals in packaged
goods companies most likely to know brand-level advertising and sales
promotion budgets and to be familiar with the antecedents and outcomes of
the allocation.
We developed a national sampling frame of product/brand managers and
group or category product/brand managers of packaged goods firms
(consumer goods manufacturers who typically distribute products via
grocery stores and mass merchandisers) in the USA using three sources.
First, we screened all the names in the American Marketing Association
membership directory; 50 names were identified as brand managers in
consumer products firms, so we included all of these in our sample frame.
Second, packaged goods member companies of the Marketing Science
Institute were invited to participate in the study; 20 brand managers were
identified from this source. Third, a list of 538 brand, product, group, and
category managers in US packaged goods firms was purchased from a trade
marketing magazine, for a total sample frame of 608 product/brand managers
or group product/brand managers. Given the small number of brand
managers we were able to identify, we did not randomly select a subset from
this sampling frame, but included them all in our study.
Enhancing response rates In order to enhance response rates for our mail survey, the techniques
advocated by Dillman (1978) were followed. Personalized cover letters
accompanied the questionnaire. These letters explained the purpose and
importance of the study, emphasized that responses would be anonymous,
and offered a summary of the results to those who included a business card.
In addition, a new one dollar bill was included with each questionnaire as an
incentive. Postage-paid return envelopes were enclosed to make responding
easier. A follow-up mailing was sent three weeks later, consisting of a
reminder letter, return envelope, and another copy of the survey. Of the 608
questionnaires sent, 120 were returned as undeliverable to the addressee,
reducing the original sample to 488. Of these, 165 completed, useable

surveys were returned, for a response rate of 33.8 percent. An assessment of
nonresponse bias indicated no significant differences between early and late
respondents on several key variables, including firm size, current market
share, and years of experience (Armstrong and Overton, 1977).
Managerial decision- In order to qualify our respondents, we asked them to report their level of
making perspective responsibility for making advertising and sales promotion budget allocations
for the brand they selected (the brand for which they had the highest level of
responsibility and familiarity). On a seven-point scale (anchored by 1 = none
at all; 7 = complete responsibility), the mean was 5.5 (standard deviation =
1.1). In addition, 93.9 percent of respondents held a position title of
brand or product manager or above (including group or product category
manager and vice-president of marketing), and reported an average of 13
years of career experience. Hence, it appears that our respondents were
knowledgeable about the domain of interest and able to provide the
managerial decision-making perspective which was the focus of the study.
Questionnaire and measure development

We developed our initial questionnaire by adapting existing measures in the
literature and by seeking input from senior marketing managers. A complete
listing of the survey items appears in the Appendix. The draft survey was then
used in a series of pre-tests that were conducted in an iterative fashion in

personal interviews with an additional 20 brand managers until no further
improvements to the draft survey were suggested. Our pre-tests clearly showed
that many brand managers are responsible for multiple brands. Hence, we
needed to focus respondents' attention on one brand as the basis for their
responses to the survey. To help them focus their answers on one brand's
budget allocation and related brand-level questions (product life cycle, market
share, etc.), the first page of the survey booklet included the statement:
When questions refer to ``your brand,'' please consistently answer these questions
based on the brand or product for which you are primarily responsible. If you are
responsible for more than one brand or product, choose the one brand with which
you are the most familiar.
This statement was designed to avoid measurement error which may have
influenced the results had we not made it clear that the basis for answering
the brand-level questions was a single brand or product.
Potential bias Second, given the potential bias involved in the survey research method, we
took steps to ensure that the research instrument included various types of
questions to minimize halo effects. Perceptual, psychological variables, such
as the importance of short-term results in the firm, were measured using
Likert scales. Most of the brand-level spending and performance data were
measured using objective questions which asked respondents to write down
actual numbers indicating market share, budget allocations, and years of
experience. Existing, related research was used as a guide in constructing our
survey. For example, we used the product life cycle question from the PIMS
survey (Buzzell and Gale, 1987).
We made an explicit trade-off in planning the questionnaire between brevity
and the use of multi-item scales for appropriate variables, with the result that
uni-dimensional product/market variables such as stage of the product life
cycle and brand type were measured with single-item scales. However,
because of their complexity and psychological nature, short-term perspective
of management, perceptions of consumer attitudes, and perceptions of brand
equity were measured with seven-point, multi-item Likert scales.

Concern given to key Special concern was given to the potential sensitivity of our key variable ±
variable budget allocations to advertising, consumer promotion, and trade promotion ±
and share and profit information. The first page of the survey booklet and the
cover letter assured respondents of anonymity. For the budget allocation
question, respondents were asked to provide their budget allocation in terms of
percentages, rather than dollar amounts, for advertising, consumer promotion,
and trade promotion (see Appendix). For current brand profit, respondents
were asked to record their responses on a seven-point Likert scale. Two
questions asked for actual market share data ± the market share from the prior
year and current market share. We calculated the change in market share as an
index number. While these measures are not as direct as they might be, senior
brand managers with whom we consulted during pre-testing suggested that it
might be the only way to collect sensitive financial and outcome data. This
technique also attempted to capture the change in performance over time.
In order to capture some of the complexity of the relationship between
marketing communications budget allocations and outcomes, we included
two key covariates ± company size and market growth rate ± in our tests of
the outcome hypotheses. We also measured competitive intensity and
initially included this key variable in our analysis, however it was not
significantly related to the dependent variables, and hence, we dropped it
from further analysis.
Scale purification
Multi-item scales assessed The multi-item scales were assessed for reliability and validity using
confirmatory factor analysis (LISREL VII) and standard reliability analysis.
The overall confirmatory factor analysis fit (each multi-item scale loading on
separate latent constructs) was acceptable, with a GFI of 0.87, AGFI of 0.77,
chi-square of 115.37 with 32 degrees of freedom. The coefficient alpha for
short-term perspective was 0.89, for perceived consumer attitudes, 0.70, and
for perceived brand equity, 0.78. Means, standard deviations, coefficient
alphas, and correlations appear in Table I.
Analysis and results

The dependent variable of interest in our antecedent hypotheses (H1 to H7)
was the percentage advertising allocation, divided by the sum of the
percentage allocations to consumer and trade promotion. Respondents were
asked to report the planned percentage of their brand's marketing
communications budget allocated to these tools for the coming year. In this
way, we attempted to identify the relationship between current
characteristics of the product, market, organization, and decision-maker, and
budget allocation plans for the future ± in essence, capturing the mix of
variables considered by brand managers in formulating their brand plans for
the coming year and the variables that may affect their decisions.
Relationships were tested The relationships hypothesized in H1 to H7 were tested using multiple
regression with the planned advertising vs sales promotion budget ratio as
the dependent variable (as defined above), and the seven product/market and
organizational/decision-maker measures entered as independent variables.
Adjusted R2 = 0.15 (p < 0.01, F = 4.99, df = 7, 157). The regression results
appear in Table II, and a summary of the hypotheses and their results appears
in Table III.
Product/market factors
H1 predicted a negative relationship between stage of a brand's product life
cycle and the planned allocation to advertising vs sales promotion. The

400
Mkt. Stage L.Y. Short- Dec. Adv. Mkt.
Coeff. gr. of Brand Rel. mkt term Retail maker sales Adv./ Cons. Brand share
Meana SD alpha Co. size rate PLC type price share persp. infl. exper. pro. alloc. att. eq. change Profit
Covariates
Company size 4.52 2.02 ± 1.00
Market growth rateb 4.85 1.34 ± 0.09 1.00
Product/market
Stage of brand PLCc ± ± ± ±0.02 ±0.22** 1.00
Brand typed ± ± ± 0.00 0.01 ±0.04 1.00
Relative price 4.18 2.04 ± 0.11 ±0.05 ±0.06 ±0.05 1.00
L.Y. market share (%) 19.91 19.43 ± 0.20* ±0.02 0.17 0.01 0.18* 1.00
Organizational/managerial
Short-term perspectivee 12.01 4.95 0.89 ±0.12 ±0.06 ±0.07 0.12 ±0.02 ±0.06 1.00
Retail influence 4.09 1.67 ± ±0.13 ±0.03 0.03 ±0.17* ±0.17* ±0.21* 0.18* 1.00
Decision maker exper.f 7.47 6.62 ± ±0.01 ±0.08 0.16* ±0.01 ±0.08 0.07 ±0.02 0.04 1.00
Budget allocation
Adv/sales promo ratio 0.50 0.15 ± ±0.03 0.02 ±0.21* 0.23** 0.16* ±0.02 0.02 ±0.20* 0.19* 1.00
L.Y. adv. alloc'n (%) 28.24 25.68 ± 0.03 0.02 ±0.11 0.17* 0.14 ±0.01 0.01 ±0.11 0.15 0.84** 1.00
Outcomes
Consumer attitudesg 20.99 3.82 0.70 0.14 0.14 ±0.08 0.15 0.08 0.16 ±0.11 ±0.03 0.10 0.05 0.12 1.00
Brand equityh 14.20 4.14 0.78 0.24** ±0.02 0.14 ±0.09 0.12 0.28** ±0.25** ±0.09 0.15 0.18* 0.25** 0.38** 1.00
Market share changei 101.14 4.29 ± ±0.04 0.11 ±0.18 0.02 0.08 ±0.07 ±0.07 ±0.12 ±0.10 0.17 0.27** 0.32** 0.11 1.00
Profit 5.00 1.67 ± 0.05 0.11 ±0.08 0.10 0.06 0.10 ±0.19* ±0.07 0.18* 0.21** 0.27** 0.33** 0.24** 0.18 1.00
a b
Notes: * p < 0.05 (two-tailed); ** p < 0.01 (two-tailed); All items on a seven-point scale, unless otherwise noted. Multi-item scales are summed as indicated; The categories for the
seven-point scale were: Decreasing over 10 per cent; ±6-10 per cent; ±1-5 per cent; Stable no growth; Increasing 1-5 per cent; +6-10 per cent; Growing over 10 per cent; c Categorical:
Introductory (n = 9); Growth (n = 77); Maturity (n = 63); Decline (n = 10); d Categorical: Family brand (n = 93); Single product brand (n = 29); Group of single product brands (n =
35); Other (n = 8); e Three items; f Number of years; g Four items; h Three items; i Index number
Table I. Means, standard deviations, coefficient alpha and intercorrelations of variables
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

Variable
Relative price 0.16*
Brand type (single vs family) 0.19*
Stage of PLC (mature vs growth) ±0.20**
Market share ±0.06
Organizational/managerial factors
Retailer influence ±0.16*
Manager's experience 0.24**
Short-term perspective 0.02
Adjusted R2 0.15**
F-value 4.99
Degrees of freedom 7,157
Notes: * p < 0.05; ** p < 0.01
Table II. Beta coefficients from multiple regression analysis for antecedent
hypotheses: dependent variable = advertising percentage/(consumer percentage
+ trade percentage)
Hypothesis Prediction Results

H1 Maturity of product life cycle stage ! Supported
advertising vs sales promotion (±)

H2 Single brands vs family brands ! Supported
advertising vs sales promotion (+)
H3 Relative price ! advertising vs sales Supported
promotion (+)
H4 Relative market share ! advertising vs Not supported
sales promotion (+)
H5 Short-term focus ! advertising vs sales Not supported
promotion (+)
H6 Retailer influence ! advertising vs sales Supported
promotion (±)
H7 Manager's experience ! advertising vs Supported
sales promotion (+)
H8a Advertising vs sales promotion ! Supported
consumer attitudes (+)
H8b Advertising vs sales promotion ! brand Supported
equity (+)
H8c Advertising vs sales promotion ! market Not supported
share (±) (relationship in opposite
direction)
H8d Advertising vs sales promotion ! profit Supported
(+)
Table III Summary of hypotheses and results
multiple regression results indicate that brands in the later phases of the
product life cycle (maturity) tend to have lower budget allocations to
advertising relative to sales promotions than brands in the earlier phases of the
product life cycle (introductory and growth). The beta coefficient is negative
and statistically significant (b = ±0.20, p < 0.01). Hence, H1 is supported.
Positive relationship H2 proposed a positive relationship between brand type (family brands coded
as ``1'' and single brands coded as ``2'') and the budget allocated to
advertising as compared to the budget allocated to sales promotion. The
regression results support this hypothesis (b = 0.19, p < 0.05). Single brands,
on average, have a higher budget percentage allocated to advertising than to
sales promotion compared to family brands.

H3 states that a brand's relative price (compared to competitors' prices) will
be positively associated with the budget percentage allocated to advertising
compared with sales promotions. The regression results show that the beta
coefficient for a brand's relative price is positive and statistically significant
(b = 0.16, p < 0.05). Thus, the higher a brand's price relative to competitors,
the higher the percentage of the communications budget allocated to
advertising compared with sales promotion. H3 is supported.
H4 asserts that a brand's relative market share will be positively related to
advertising budget allocations compared with sales promotion allocations.
The regression coefficient for market share is not significant. Thus, this
hypothesis is not supported.
Organizational/managerial factors
Consumer and trade H5-H7 predicted the relationship between organizational or decision-maker
promotion factors and managers' allocations of marketing communications budgets to
advertising relative to consumer and trade promotion. Table II also presents
the regression results testing these hypotheses. Two of the three
hypothesized relationships are supported by the data.
H5 states that when senior management in the firm is perceived as being
focused on short-term results, brand managers plan to allocate less of their

budgets to advertising relative to sales promotion. The beta coefficient for
this variable was not statistically significant. Hence, H5 is not supported.
H6 posits that as retailers have more influence, brand managers allocate
proportionately less of their budgets to advertising relative to consumer and
trade promotion. The regression coefficient for retail influence is negative
and statistically significant (b = ±0.16, p < 0.05). This result shows that H6 is
supported. As expected, when managers perceive retailers' influence to be
strong, their marketing communications budget has a lower allocation to
advertising relative to sales promotion.
Decision-maker experience H7 predicted that as managers have greater experience with the company,
they tend to allocate proportionately more of their budgets to advertising
relative to sales promotion. The results also support this hypothesis (b = 0.24,
p < 0.01). Decision-maker experience is positively related to the proportion
of budgets allocated to advertising relative to sales promotion.
Outcomes
H8 addressed the relationships between the budget allocation and consumer
attitudes, brand equity, market share change, and profit. A positive
relationship was predicted between the advertising allocation and perceived
consumer attitudes (H8a), brand equity (H8b), and profit (H8d), and a negative
relationship was predicted between the advertising allocation and market
share (H8c). In order to test these hypotheses, we used a median split based
on the previous year's actual budget percentage allocated to advertising to
form two groups of respondents. (Using the prior year's budget allocation
with the current year's outcomes allows us to isolate the lagged relationship
between prior decisions and current outcomes.)
The median for the previous year's actual advertising allocation was 20 per
cent. The high advertising allocation respondents (greater than 20 per cent,
n = 56) had lower average sales promotion allocations, whereas the low
advertising allocation respondents (less than or equal to 20 per cent, n = 57)
had greater average sales promotion allocations. (The total does not equal
165 because of missing data for the multivariate analysis.) This median split

grouping was then used as the independent variable in a MANCOVA
analysis, together with the four, correlated dependent variables (consumer
attitudes, brand equity, market share, and profit), and the two covariates
(market growth rate and company size). The MANCOVA results appear in
Table IV.
Advertising vs sales As these results show, the multivariate effect of the advertising allocation vs
promotion sales promotion allocation was significant (Wilk's Lambda = 0.83, F = 5.54,
p < 0.001, Eta2 = 0.17), with significant univariate relationships found for
each of the four dependent variables: managers' perceptions of consumer
attitudes (b = 0.17, F = 9.78, p < 0.01) and brand equity (b = 0.23, F = 10.39,
p < 0.01), market share (b = 0.21, F = 4.56, p < 0.05), and profit (b = 0.22, F
= 10.79, p < 0.01). All four relationships are positive; however, we had
predicted positive outcome relationships for all but H8c (the relationship
between the relative budget allocation to advertising and market share, for
which we had predicted a negative relationship). Hence, H8a, H8b and H8d
are supported, but H8c is not supported. It appears that larger advertising
budget allocations are associated with enhanced consumer attitudes, brand
equity, profit and market share. We elaborate on these results in the next
section.
Discussion
A primary objective of this study was to understand how bounded rationality
could contribute to an increased understanding of the continued emphasis on
sales promotion in the marketing communications budget allocation in the
face of concerns about its harmful effects. We examined the relationships
between product/market heuristics and organizational/decision-maker biases
and brand managers' allocations to advertising vs sales promotion. Our study
provides additional insight to the budget allocation decision process by
focusing on brand-level budget allocations, and by including variables that
capture the contextual realities of organizational decision-making. In
addition, we extend existing research by investigating the impact of
communications budget allocations on perceptions of brand outcomes. In the
following sections, we discuss the key findings of our study, suggesting
managerial implications, study limitations, and directions for future research.
Managerial implications
Why do managers continue to spend heavily on sales promotions relative to
advertising, despite emerging evidence that such allocations may lead to
undesirable consequences? By investigating the budget allocation decision
process from the hands-on perspective of brand managers who are at the
heart of the decision, our findings support the bounded rationality predictions
that a combination of product/market and organizational/decision-maker
factors relate to the allocation. Some of these factors are controllable by
management and therefore have direct implications.
Commonly used decision As brands progress through the product life cycle, managers plan to allocate
rules proportionately less of their marketing communications budget to
advertising, and more to consumer and trade promotions. In addition, lower
relative price brands and family brands typically receive an allocation that
emphasizes sales promotion relative to advertising. These product/market
factors appear to be commonly used decision rules that managers rely on in
making their allocation decisions. Given the preponderance of mature
packaged goods brands, low price strategies, and look-alike brand extensions
(Kahn and McAlister, 1997), the continued high sales promotion allocations
are not surprising. Managers looking to increase advertising allocations

404
Multivariate effects Univariate effects ± outcomes
Brand equity Consumer attitudes Profit Share change
Wilks'
Lambda F Eta2 Beta F Eta2 Beta F Eta2 Beta F Eta2 Beta F Eta2
Covariates
Company size 0.88 3.63** 0.12 0.23 10.43** 0.09 0.11 5.04* 0.04 0.07 3.39 0.03 ±0.05 0.47 0.00
Market growth rate 0.89 3.13* 0.11 ±0.06 0.82 0.01 0.10 7.93** 0.07 0.09 2.08 0.02 0.10 1.32 0.01
Main effect
Relative advertising 0.83 5.54*** 0.17 0.23 10.39** 0.09 0.17 9.78** 0.08 0.22 10.79** 0.09 0.21 4.56* 0.04
allocation
Adjusted R2 0.10 0.04 0.05 0.03

F 6.16** 2.77* 3.41* 2.33
d.f. 3,142 3,137 3,143 3,114
Notes:
* p < 0.05
** p < 0.01
*** p < 0.001
Table IV. MANCOVA results: effects of advertising vs sales promotion allocation on outcomes
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

should first consider adjusting their brand strategy to focus on higher-priced,
more meaningful new products or brand extensions (cf. Andrews and Low,
1998), using an individual branding approach.
Impact of rational product/ The impact of rational product/market factors on the allocation should be
market factors considered in light of influential organizational realities and personal biases.
Managers might intend to be rational in their allocation decisions, but be less
conscious of the impact of organizational and personal variables. Our results
show that when retailer influence is strong, managers allocate
proportionately fewer dollars to advertising, and more to consumer and trade
promotion (retailer influence was measured using a one-item Likert scale
asking respondents to rate how much influence retailers have over brand
managers' marketing allocations). In order to counter-balance this tendency,
managers might work more closely with retailers either to monitor the use of
promotional dollars, or to work on joint advertising and promotion programs
which create a win-win situation and increase the proportion of product sales
at full price. However, as retailers grow in size and influence, the problem of
retailer influence and escalating sales promotion spending will continue to be
a difficult challenge for packaged goods manufacturers. For example, recent
consolidation by large US grocery retailers such as Kroger, Albertson's, and
Safeway has made the retailer manufacturer relationship a critical factor in
decisions related to advertising and trade promotion spending.

When managers have more experience with the company, they plan to
allocate proportionately more dollars to advertising and fewer to consumer
and trade promotion. Accordingly, firms may consider implementing a
formal mentoring program, whereby more experienced managers work with
less experienced managers in allocating their marketing communications
budgets. Such a practice may offset the tendency of less experienced
managers to use more sales promotions. This finding also highlights the need
for more measurement techniques to assess the long-term effects of
advertising, such as that recommended by Dekimpe and Hanssens (1997).
Such techniques may help both inexperienced and senior brand managers
understand more confidently the potential outcomes of their budget
allocation decisions.
New perspective Our findings provide marketing and advertising practitioners with a new
perspective that may encourage them to more strategically manage the
marketing communications budget allocation process. The antecedent
relationships identified could be critiqued and discussed by brand planning
teams to determine if these overall trends fit their company's strategic
direction for a product or division. For example, should products in the
mature phase of their life cycle receive more sales promotion spending and
less advertising than new brands? Should a higher-priced, single brand
receive more advertising and less sales promotion than other brands? How
conscious are brand managers that retailer power influences allocations
towards sales promotions at the expense of advertising and that their
experience level may be influencing their decisions? By explicitly
considering these issues in budgeting decisions, managers may be able to
avoid allowing such factors to unwittingly bias their budget allocations. Our
research objective was not to determine the optimal allocation of budgets,
but to recognize the bounded rationality of the decision process by seeking to
make a decision as free from bias and error as possible. Particularly where
large budget amounts are involved, which is typical in many grocery product
manufacturers, even minor, incremental improvements in budget allocation
decision-making may improve brand performance significantly.

Importance of budget With respect to the outcome results, the significant multivariate and
allocation univariate effects of the per cent advertising allocation on all four outcomes
(consumer attitudes, brand equity, market share and profit) indicate the
importance of the budget allocation for brand performance. These results
support the warnings of many that funds diverted away from advertising to
sales promotion may lead to unanticipated negative consequences. Consumer
attitudes, brand equity, market share and profit were all significantly higher
for brands whose advertising allocation was above the sample median of 20
per cent. These findings imply that it may be possible for many firms to
simultaneously achieve positive results on all four outcomes by increasing
their allocation to advertising and decreasing their allocation to sales
promotion.
The unexpected, positive relationship between the advertising allocation and
change in market share suggests that sales promotions may not be having the
effect on sales and share that many managers take for granted. Possibly,
despite the market visibility generated by sales promotion activity,
consumers may be tired of sales promotion offers and the positive
relationship between advertising and share is the result of this promotion
overkill. Alternatively, there may be so much sales promotion spending in
some consumer packaged goods categories that firms using these promotions
are making consumers less brand loyal and more price sensitive ±
overshadowing the perceived benefits of the brands and reducing overall
category sales (Mela et al., 1998; Papatla and Krishnamurthi, 1996). It is also
well known that many retailers use trade promotions simply as a way to
increase their profits ± they do not pass the savings on to consumers at all
(Kahn and McAlister, 1997). Dollars might be shifted to advertising in order
to build loyalty, while increasing the efficiency and effectiveness of a
reduced sales promotion budget (Buzzell et al., 1990).
Limitations and future research

Implications of the study The implications of this study should be considered in the context of its
limitations, which also suggest a number of areas for future study. We
collected data based on brand managers' knowledge of facts and perceptions
of reality. In accordance with our theoretical perspective, our goal in this
study was to understand the marketing communications budget allocation as
a decision made by brand managers. It is managers' perceptions of the
factors we studied which affect their decision-making; hence, perceptual
measures were used. While we used a wide variety of measures to attempt to
minimize any possible halo effects, it would also be useful for future
research to assess some of these variables more directly, such as consumer
attitudes and profits.
An additional limitation concerns the complex relationship between
marketing communications allocations and outcomes ± many other variables
are related to a brand's performance. While we attempted to address this by
controlling for important covariates, other variables are likely to have an
important effect on outcomes. We also acknowledge the lag time that should
occur between the strategy and its outcomes, and the bidirectionality of many
of the relationships in our study. We attempted to address this by using the
last year's allocation and the current year's outcomes. We also recognize the
strong potential for reciprocal effects of product/market factors as well as
outcome variables, and the advertising allocation (dual causality). For
example, strong profits may be an effect as well as a cause of increased
advertising spending. We asked respondents to report the coming year's
planned allocation to advertising, which allowed us to assess the effect of

current market conditions on future allocations. However, further research is
needed to better understand the direction of the long-term, causal
relationships identified in our study.
Useful extensions of this study might address not only the allocation
percentage to advertising as compared to sales promotion, but also compare
this to the absolute level of spending. Although we did not measure budget
size directly, we found two brand managers in our data who identified
themselves by sending their business cards with their surveys. Both of their
brands are in the extremely competitive cola industry, one a large multi-
national, the other a small regional brand. The large-budget brand had an
allocation of 86 per cent to advertising; the small-budget brand had 70 per
cent allocated to trade promotion. It may be that smaller budgets dictate that
a larger percentage is allocated to trade promotion in order to achieve
adequate distribution levels and secure valuable shelf space. Future research
could address these issues.
Future research efforts Future research efforts could also explore the effects of other factors not
measured in our study. It may be that special sales promotion types, such as
contests and sweepstakes, for example, affect outcomes differently than
commonly used promotions such as coupons. Internet advertising, fast
becoming an important communications tool, may be related to antecedents
and outcomes in a different way than traditional media and sales promotions.
Relevant consumer-based characteristics such as brand loyalty and deal
proneness might also affect allocation decisions. Another extension of this
study could examine moderating relationships among antecedent variables. For
example, it may be that in early stages of a product's life cycle, when category
growth is generally a more important objective, there may be a different set of
factors driving advertising or sales promotion spending than in later stages of a
brand's life cycle, when brand development becomes the dominant goal.
Marketing managers struggle with the need to support short-term market share
and simultaneously build long-term brand equity and profitability for their
brands. Marketing communications budget allocation decisions epitomize this
struggle, one that short-term sales promotions appear to be dominating. The
relative allocation between advertising and sales promotion is particularly
important in today's environment of flat marketing budgets where an
increased allocation to one communications tool typically comes at the
expense of another. Despite the importance and timeliness of this allocation
decision, it is poorly understood, particularly from the perspective of brand
managers who are faced with making and implementing budget allocations. In
order to address this lack of knowledge, we adopted a bounded rationality
perspective and conducted a study of the antecedents and outcomes of brand
managers' budget allocations to advertising and sales promotion. Our findings
identify some of the decision heuristics and biases that help explain why brand
managers continue to allocate much of their budget to sales promotions,
despite the potential benefits of shifting some of it to advertising. A greater
understanding of these issues offers managers and researchers alike the
opportunity to improve the way this important decision is made.
Notes
1. The categories for brand type were coded using 1 for family brand, 2 for single product
brand, 3 for a group of single product brands, and 4 for `òther''. The first three categories
made sense to code in a linear fashion, as each brand type increased in uniqueness and
complexity. We determined that coding the `òther'' cases as a 4 was appropriate after
looking closely at the eight cases in this category and noting that these exceptions were a
step higher in complexity and uniqueness of brand type.

2. R denotes reverse scoring.
3. An open-ended questionnaire below the categories asked respondents to detail the reasons
why planned spending may have deviated from actual. In addition, they were asked to list
any strategic changes which might have influenced this year's allocation. Of the 35
respondents who had a deviation from planned spending to actual, most cited competitive
activity and pressure from retailers to increase trade deals (in order to keep shelf space
and retail support). Other reasons for deviation from planned vs actual were delays in
advertising creative, disappointing advertising results, investing in brand building
activities, entering new geographical markets, introducing new products, oversupply of
product, increased costs of products and organizational restructuring. Of the 42
respondents who cited strategic changes which influenced the planned allocation, the
majority included a philosophical shift away from trade and into advertising activities.
4. For those firms which might have defined the various tools in a `ùnique or different
way'' or for those which felt a need to elaborate on the categories used by their firm, an
open-ended question beneath the categories allowed respondents to elaborate on their
categories. Information here generally supported the distinctions we draw between the
three tools. For example, advertising expenditures included media spending; consumer
promotion included in-store demonstrations, coupon vehicles such as FSI and direct mail,
samples, and so forth. Only four of the 165 surveys indicated slight differences. For
example, two respondents said that customer promotion included point of purchase and
in-store (non-price) materials. And two respondents indicated that brand budgets did not
contain trade dollars ± one because the trade budget is set prior to ``handling down'' a
budget to brands, and the other because trade promotion was not considered a marketing
expense, but rather an `òffset'' to revenue. We re-ran the analyses without these four
cases; and the results did not change.

5. An `òther'' category was provided for those whose plan included other tools, such as
direct mail. A total of 28 respondents include other items in their marketing
communications budget. however, by using the relative allocation (advertising/consumer
+ trade promotion), we avoid bias in the antecedent hypotheses. To check for potential
bias in the outcomes analysis, a covariate was added to control for these 28 cases, and the
MANCOVA was re-run with the same results. In addition, we ran the MANCOVA again
without these 28 cases, and again, the results were the same.
6. Coded from 1 through 7, higher numbers for higher growth rates.
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Appendix. Survey Items

Brand type. (Family vs single product brands).
Please check the brand type that best describes your brand responsibility (check one).
This is a:
Family brand (one brand name/multiple products, i.e. Dole products) (n = 93).
A single product brand (i.e. Cracklin' Bran cereal, which comes in multiple sizes and
flavors) (n = 29).
A group of single product brands (n = 35). Other (specify): (n = 8)[1].
Relative price. (Seven-point Likert scale, strongly agree, strongly disagree anchors.)
Relative to my competitors, my brand's retail selling price is higher.
Market share. (Seven-point Likert scale.)
Relative to my competitors, the volume market share for my brand is quite a bit lower. (R)[2].
Stage of brand's product life cycle.
Which of the following best describes the product life cycle stage of your brand:
Introductory, Growth, Maturity, Decline
[Because of the nature of our hypothesis, which compared earlier stages of the PLC ±
introductory and growth ± to maturity, respondents in the introductory or growth stage were
coded as ``1'' (cf. Sethuraman and Tellis, 1991), while respondents in the mature stage were
coded as ``2.'' The `òther'' or ``decline'' cases (n = 10) were coded as missing for this
variable.]
Organizational factors
Retail influence. (Seven-point Likert scale.)
Retailers have no influence in how funds are allocated to the various marketing tools for my
brand. (R)
Short-term perspective. (Seven-point Likert scale) (Coefficient alpha = 0.89).
Top managers repeatedly tell employees that this business unit's survival depends on its short-
term performance.
According to senior managers here, short-term performance is the most important measure of
our business unit's success.
This organization's management is satisfied achieving short-range goals and objectives.
Decision-maker's experience.
Please specify the number of years that you have worked in this company.

Budget allocation
``Responding to competitive threats and/or financial concerns may mean that what you actually
spend on advertising, consumer promotion, and trade promotion differs from what you planned
to spend. Planned refers to the percentage allocation numbers in your brand plan; Actual refers
to the percentage that was actually spent after changes and adjustments in spending were made
during implementation in the past year[3]. (Note: if your brand is a new brand, put `0' in last
year's columns.) All responses are anonymous''[4].
Last year's Last year's This year's
planned spending actual spending planned spending
(divide 100%) (divide 100%) (divide 100%)
Advertising
Consumer promotion
Trade promotion
Other (specify)[5]
Total 100 per cent 100 per cent 100 per cent
Outcomes
Consumer attitudes. (Seven-point Likert scale) (Coefficient alpha = 0.70).
Consumer attitudes, in general, for my brand are very positive.
Consumer attitudes towards my brand, relative to my key competitor(s), are more favorable.
Relative to last year, consumer attitudes for my brand are more positive.
Consumers feel better now about my brand than they have in the past.
Brand equity. (Seven-point Likert scale) (Coefficient alpha = 0.78)
When it comes to brand equity, I would say my brand does pretty well.
My brand's equity is not as strong as I would like it to be (R).
Relative to my major competitors, my brand's equity is solid.
Current market share
The current monthly volume market share for my brand nationally is: (please fill in per cent).
Last year's market share.
My brand's monthly volume market share nationally a year ago was: (please fill in per cent).
(Change in market share computed as the difference between current year's share +100 and last
year's share + 100, to produce an index number.)
Profit
Relative to other brands in my company, my brand's profit performance has been very good
lately. (Seven-point Likert scale.)
Covariates
Market growth rate[6].
Compared to last year, the annual volume sales growth for this brand's product category is:
Decreasing more than 10 per cent/±6 to ±10 per cent/±1 to ±5 per cent/Stable-no growth/
Increasing 1 to 5 per cent/+ 6 to +10 per cent/ Growing over 10 per cent.
Company size
Please circle the one number which best describes the size of your company relative to other
competitors in your industry. (Seven-point scale, anchored by 1 = ``relatively small'',
7 = ``relatively large,'' 4 labeled `àbout the same''.)
&

This summary has been Executive summary and implications for managers and
provided to allow managers executives
and executives a rapid
appreciation of the content Advertising works and don't you forget it!
Despite the fact the sales promotions receive considerable criticism from
of this article. Those with a
academics and practicing marketers, there is a continued growth in the total
particular interest in the
amount spent on such promotions and in the proportions of overall marketing
topic covered may then read
expenditure given over to sales promotions. Either the ordinary brand manager
the article in toto to take
knows something we don't or else there is a failure to connect with such people.
advantage of the more
comprehensive description Low and Mohr find that the problem lies ± or appears to lie ± in part with the
of the research undertaken fact that the ``rational'' budget allocation decision taken by a product or
and its results to get the full brand manager is bounded by factors within the firm ± the rational decision
benefit of the material is ``bounded''. As Low and Mohr describe ``. . . managers use their own
present biases judgment to make decisions and are influenced by the realities of
organizational life''.
Most brand managers will explain their use of sales promotions by saying
that they ``work''. To understand the allocation decision between sales
promotions and advertising we have therefore to appreciate just what is
meant by the brand managers understanding of what works.
Delivering to the performance target

Brand managers ± even where they do not receive a performance element in
their pay ± are driven by the need to meet targets set for the brand or brands
that they manage. These targets are usually set in terms of sales revenue,
contribution or market share. And, given the focus within most businesses,
the targets are set on an annual basis.
Imagine that you are a brand manager and you have received the sales,
market share and contribution targets for your brand. You have to make a
choice between advertising and sales promotions in the allocation of the
limited budget available. You start off applying your knowledge of brand
marketing by defining a strategy for the brand's promotion. Being a well-
trained marketer you focus on the benefits of advertising and create a
strategy that aims to build the ``brand franchise'' as a means of securing
long-term advantages for the brand. Great stuff.
But then you look again and realise that, at some point during the year, the
brand's performance will be examined. You may know your strategy to be
right but you also know that you cannot be sure that, come the six-month
review, the figures for share or sales revenue will be on target. The result is
that you build into the strategy promotional campaigns that will deliver the
right numbers.
One of your colleagues may have stuck with his/her campaign ± after all it is
the right approach. But, following her six-month review, the sales figures are
not there. What happens here is a mad rush of promotions designed to shore
up the failure of the advertising campaign.
This short-term perspective has been criticised at great length. Marketers
know that the best way to build a brand is to use advertising. Marketers know
that sales promotions can damage brand image. If you are always offering a
deal it gets increasingly hard to secure sales at the full price. And we can
assume that the pricing decision is made to deliver a set level of contribution
to the firm's profits.
If you want brand managers to deliver on the promise of strong image and a
powerful brand franchise, you have to set targets that allow them to invest
budgets in advertising rather than price-cutting sales promotions.

Retail pressure and retailer power
The traditional brand management model is predicated on pulling customer
through the retailer. Because you invested in high profile advertising the
retailer had to stock your product or disappoint customers. The power within
the system lay with the big brands that could dictate a great deal to the
retailer.
But two important things happened. First, retail price maintenance was
scrapped ± firms could no longer insist that retailers stick to the
recommended price. Second, the retailers began to grow in size and to invest
in systems that gave them far more information about consumers and
consumer behaviour than was available to the big brand owners.
The result of this change was that retailers began to insist on the brand
owners supporting their strategies. And, at the heart of these strategies, was
the desire to pull in more customers through the delivery of low prices. Trade
promotions and trade discounting were essential to such a strategy.
As the bigger retailers pushed out and absorbed the smaller shops, the power
of the store chains forced brand owners to respond by trade promotions. The
result has been huge shifts of marketing spend from advertising to trade
promotions. And, at the same time as this consolidated retailer power it also
gave those retailers the ability to focus on increasing their own overall
margins through own label products and, at least in the UK, by developing
their own brands through advertising.
Is there hope for brands? Not if they rely on sales promotions

The sales promotion is just another name for a price cut. Yes that price cut is
delivered through a coupon, a good deal or a competition. But it remains a
price cut. If brand owners want longer-term success they have to re-
emphasise advertising and allocate budgets accordingly. This means
reassessing the performance targets given to brand managers and
addressing the pricing issues that have led retailers to demand promotions.
The principles of classical brand marketing still apply and brand managers
need to appreciate that high profile brands have bigger market shares for
longer that brands where the share is created by short-term promotions. Low
and Mohr show that sales promotions are a lazy approach to marketing and
do not produce a better or more consistent result than good advertising.
(This is a preÂcis of the article `Àdvertising vs sales promotion: a brand

management perspective''. Supplied by Marketing Consultants for MCB
University Press.)

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Advertising vs sales promotion: A brand management perspective

Article in Journal of Product & Brand Management · November 2000

George S. Low Jakki J. Mohr

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Keywords Brands, Advertising, Sales promotion, Decision making

390 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

Conceptual foundations and hypotheses

Advertising vs sales promotion budget allocation

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 391

Product/market antecedent hypotheses

1991). Hence, we predict that:

392 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

promotion because such actions would produce diminishing returns ± their

Organizational/decision-maker antecedent hypotheses

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H5: A brand manager's belief that, in his or her organization, short-term

394 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

Outcomes of advertising and sales promotion allocations

allocations and managers' perceptions of profit, market share, brand equity

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 395

396 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 397

Questionnaire and measure development

used in a series of pre-tests that were conducted in an iterative fashion in

398 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

from further analysis.

Analysis and results

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Table I. Means, standard deviations, coefficient alpha and intercorrelations of variables

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

Hypothesis Prediction Results

advertising vs sales promotion (±)

Table III Summary of hypotheses and results

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focused on short-term results, brand managers plan to allocate less of their

402 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 403

Adjusted R2 0.10 0.04 0.05 0.03

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

decisions related to advertising and trade promotion spending.

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 405

Limitations and future research

406 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 407

cases; and the results did not change.

408 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

Journal of Marketing, Vol. 38, October, pp. 29-34.

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 409

410 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

Appendix. Survey Items

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 411

412 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

Delivering to the performance target

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000 413

Is there hope for brands? Not if they rely on sales promotions

(This is a preÂcis of the article ``Advertising vs sales promotion: a brand

414 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 9 NO. 6 2000

a Mediating Variable. Management Science 53, 46-60. [CrossRef]