APS 425 Case #3: due March 1, 2007
Corporations frequently worry about the efficacy of their advertising expenditures.
This data file [A425_Pinkham.wf1]
contains annual sales revenue (SALES) and advertising expenditures (ADVERT)
for the Lydia Pinkham Company from 1907 through 1960, expressed in thousands
of dollars per year ($000). Their sole product was an alcohol-based elixir that
was supposed to cure vaguely defined "women's ailments" (before the
FDA and FTC came along and limited the scope of their claims).
These data were used in early research papers by marketing academics to study
long-term effects of advertising. The basic question is whether the money you
spend on advertising today helps build brand capital that increases sales in
future years. Of course, marketing managers are likely to think positively about
results that show the benefits from advertising extend past the current sales
year.
A skeptical view that is sometimes expressed by non-marketing managers is
that the marketing department will spend any money it can get its hands on.
Since it is hard to measure the effectiveness of advertising, firms spend more
when it seems "cheap" because they have a lot of cash coming in from
product sales, but cut back on advertising when times are tough and sales are
down. From this perspective, high sales revenue is the cause of high advertising
expenditures, not vice versa.
Your assignment is to use the data in the Eviews workfile to analyze these competing
views of the relation between sales and advertising for this company. In particular,
provide an analysis of the efficacy of advertising for the company's owners.
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Last Updated on 2/15/2007