Share and Growth Are Not Good Predictors of the Advertising and Promotion/Sales Ratio

Abstract

Researchers have tried for several years to explain variations in advertising and promotion/sales (A&P/S) ratios across brands, product-market categories, firms, and industries. Market share (MS) and market growth (MG) have been included as explanatory variables in almost all of these studies. A recent article by Balasubramanian and Kumar (1990) presents a parsimonious yet powerful model explaining A&P/S ratios using these two variables and their interaction. Though the MG-MS matrix provides a possible rationale for the use of these variables in an interaction model, the authors argue that it is more consistent with strategic business unit (SBU)-level data than firm data. They attempt to replicate the model with two other data sets (SBU and brand data) as well as a version of the firm data used in the original study. Being unable to find empirical support for the model with any of the three data sets, they argue that further research should rely on other variables.