A New Theorem for Optimizing the Advertising Budget

Abstract

ABSTRACT This article offers a new solution to the advertising budgeting problem, developed through empirical optimization. This method combines axioms with empirical generalizations to simulate profits. The resulting profit maps yield specific decision rules and general theorems. For advertising budgeting, empirical optimization shows that if advertising elasticity is 0.10 the optimal advertising budget is always 10 percent of gross profit. The corresponding theorem, that optimal advertising is advertising elasticity multiplied by gross profit, is new and is supported by an algebraic proof. This is an advance on the advertising/sales budgeting rule, and a replacement for the long-established Dorfman-Steiner theorem of optimal advertising.

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