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Allocation of Generic Advertising Funds Among Products: A Sales Maximization Approach

Published online by Cambridge University Press:  10 May 2017

Henry Kinnucan  and
Olan D. Forker
Henry Kinnucan
Affiliation:
Department of Agricultural Economics and Rural Sociology, Auburn University
Olan D. Forker
Affiliation:
Department of Agricultural Economics, Cornell University
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Abstract

With the passage of the Dairy and Tobacco Adjustment Act of 1983, dairy fanner investment in product research, nutrition education, advertising, and promotion in the United States increased from $60 million to $200 million annually. A key decision faced by boards managing these funds is how best to allocate available advertising funds among the various dairy products. In this paper an economic model is developed that shows the allocation of funds among products that would maximize sales in a given market. The model is applied to the New York City market with results suggesting that over the study period diverting funds from fluid milk to cheese advertising would have enhanced milk-equivalent sales in the market by as much as 1.17% or 8.21 million gallons annually. Alternatively, the model suggests that the same sales level could have been achieved with a different allocation of funds resulting in an estimated 14.6% savings in the amount spent advertising the two products.

Keywords

advertising and promotiongeneric advertisingdairy promotiondairy policysales maximization
Type
Articles
Information
Northeastern Journal of Agricultural and Resource Economics , Volume 17 , Issue 1 , April 1988 , pp. 64 - 71
Copyright
Copyright © 1988 Northeastern Agricultural and Resource Economics Association 

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Footnotes

Comments by John Adrian, Bill Hardy, Donald Liu, and Lowell Wilson on earlier drafts of the manuscript are appreciated. Special appreciation is expressed to Oscar Cacho for checking the accuracy of the mathematics. Responsibility for the content of the paper rests solely with the author, however.

Alabama Agricultural Experiment Station Journal No. 1-861123.

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