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5.Explain the S-shaped response curve and the concave downward curve as they relate to budgetsetting. What are the differences in these two curves? Give examples of how each might be moreappropriate for different products. (LO6)Both the S-shaped and concave downward curves are based on economic theory. In the former, themodel proposes that the effect of the advertising on sales will proceed through three ranges. In thefirst range there is very little impact of ad expenditures on sales, then in Range B the impact risesrapidly, indicating that the advertising is having an impact, with sales revenues exceeding advertisingexpenditures. Eventually, the curve flattens out (Range C), as incremental raises in advertising havelittle impact on sales.The S-shaped response curve would seem best suited to low involvement products. Additional adexpenditures might eventually create awareness among more consumers and even encourageconsumers to try a product after repeated exposures. As will be seen in Chapter 10, it often takes anumber of exposures to an ad to have an impact.7-13
Chapter 07 - Establishing Objectives and Budgeting for the Promotional ProgramThe concave downward function implies that the impact of the advertising will have an almostimmediate impact or none at all. This impact levels off very quickly, however, with subsequentoutlays having no additional effect on incremental sales.For higher involvement products, like an automobile, the concave downward function may be thebetter argument. For example, if you have just made an auto purchase, it is highly unlikely that anyadditional advertising outlays are going to get you to purchase another. The decision has been made.Likewise, if one is in the market for a high-involvement purchase, an incentive (rebate, financing,etc.) may be enough to result in the final commitment to purchase.While the two curves are similar in that they are both based on economic theory, and examine therelationship between advertising outlays and incremental sales, they are also very different. In the S-shaped response model, there is more of a cumulative effect of advertising, as more exposures maylead to more sales, and repetition may have more of an impact. In the concave downward model, theimpact of the ad would appear to be more immediate, and additional expenditures may have lessimpact. 6.There have always been attempts to directly measure the effects of advertising on sales. At the sametime, there are many who believe that this is rarely possible. Why is it so difficult to establish arelationship between advertising and sales? (LO3)As you might expect, when one is spending a lot of money on advertising, it is important to know ifthis money is being spent wisely. Thus, there has always been an attempt to relate advertising to sales.