Executive Summary
To design effective budgeting strategies, marketing managers need to understand the nature of the market response and the functions/effects of temporary versus sustained budgeting in achieving and sustaining market performance. For example, can a temporary, intensive marketing campaign create persistent effects? When should budgeting methods such as percentage or constant budgeting be applied?
To help marketing managers in budgeting tasks, the authors conduct an intrinsic market evolution (IME) study, using the advertising–sales relationship as an example of general marketing input–output dynamics. They propose the IME test to distinguish two types of market dynamics with two types of evolution: (1) intrinsic evolution in intrinsic-evolving markets, in which sales evolve independent of advertising and temporary marketing can generate persistent effects, and (2) induced evolution in intrinsic-stationary markets, in which sales evolution is supported by sustained advertising budgets and there are no real persistent effects of temporary marketing. Marketing managers can use the IME test as a quick market assessment tool before detailed market information, such as customer surveys, is available.
On the basis of the distinction between intrinsic-stationary and intrinsic-evolving markets, the authors analyze the following five major budgeting implications: First, in intrinsic-evolving markets, budgeting marketing inputs can be relatively flexible and short-term focused. In intrinsic-stationary markets, budgeting is a demanding task and should be long-term focused. Second, in an intrinsic-stationary market, under the assumption of linear advertising effects, percentage budgeting at a sufficient level can create and sustain induced evolution, whereas constant budgeting maintains a sales level. Third, when budgeting, marketing managers need to consider both the market environment and the intrinsic nature of the market. In an intrinsic-stationary market, percentage budgeting is preferable under positive market environments, whereas constant budgeting can be beneficial in negative environments. Fourth, to create induced evolution, the advertising series must evolve. Fifth, temporary, intensive marketing actions are neither sufficient nor necessary for sustained market gains in an intrinsic-stationary market.
The article provides methods to quantify temporary and sustained budgeting. By analyzing the advertising and sales data of five companies, the empirical illustrations demonstrate the difference between the proposed IME test and the standard unit root test in identifying market evolution and the effects of several budgeting practices on sales performance in intrinsic-stationary and intrinsic-evolving markets.
Biography
Fang Wang is Associate Professor of Marketing in the School of Business and Economics at Wilfrid Laurier University, Canada. Her research focuses on brand equity assessment, marketing data mining/analysis, long-term marketing productivity, and marketing strategy. She also works on e-commerce and information systems related topics. In addition to Journal of Marketing, she has published in several journals, including Information & Management. She holds a PhD from McMaster University, Canada, and an MBA from the University of Texas at San Antonio.
Xiao-Ping (Steven) Zhang is Associate Professor of Electrical and Computer Engineering and Director of the Communication and Signal Processing Applications Laboratory, Ryerson University, Canada. He holds a BS and a PhD in Electronic Engineering from Tsinghua University and an MBA in Finance and Economics from the Graduate School of Business at the University of Chicago. Dr. Zhang holds or has filed five U.S. patents, and his research has appeared in leading scientific journals, such as IEEE Transactions on Signal Processing; on Image Processing; on Information Forensics and Security; on Multimedia; and on Neural Networks. His recent interests in finance and marketing have led to research in marketing strategies and financial information processing. Dr. Zhang is a registered professional engineer in Ontario, Canada, a senior member of IEEE, and a member of Association for Computing Machinery. He has Silicon Valley experience and has consulted for biotech companies and, more recently, for hedge funds and trading firms.
Journal of Marketing, Volume 72, Number 5, September 2008
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