A Model for Predicting Advertising Expenditures: An Inter-Industry Comparison

Abstract

The purpose of this study was to determine and predict average industry advertising expenditures. The study focused on consumer non-durable goods industries, since advertising is their primary promotion tool. A model was developed incorporating variables that may affect advertising expenditures such as sales, net income, advertising expenditures, working capital, GNP, and Personal Consumption. The model was estimated using multiple regression analysis. Data was gathered on fifteen industries from the Compustat base. The results indicated statistically significant models in all industries, with high explanatory power. The study found that average industry advertising expenditures can be determined and predicted based on past years' average advertising expenditures, average profits, personal consumption, and GNP. This conclusion reinforces at the industry-level evidence, already existing at the company level, that advertising budgets are not based on the above-mentioned factors. Finally, the study predicted, with notable accuracy, average advertising expenditures in nine industries.

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