How Prices, Ad Expenditures, and Profits Are Linked

What, if any, is the relationship among prices, advertising expenditures, and return on investment? Prior research has yielded inconclusive answers to this question, but in analyzing data from 227 consumer businesses, the authors have found a consistent pattern. Companies with relatively high prices and high advertising expenditures, for instance, had higher profits than companies with […]

by

Paul Farris

and

David J. Reibstein

by

Paul Farris

and

David J. Reibstein

From the Magazine (November 1979)

A few years ago, a leading ketchup maker significantly increased its advertising and promotion expenditures and simultaneously lowered its prices. The company gained market share at the expense of the top ketchup manufacturer, Heinz, and other brands, but the victory was a hollow one. The combination of increased advertising expenditures and low prices caused its profits to suffer, and the company eventually abandoned this strategy.

A version of this article appeared in the November 1979 issue of Harvard Business Review.

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PF

Paul Farris is the Landmark Communications Professor of Business Administration, at the University of Virginia’s Darden School of Business.
DR

David J. Reibstein are professors of marketing at the University of Pennsylvania’s Wharton School, where they specialize in marketing modeling. Mr. Lodish is the previous HBR author of “ ‘Vaguely Right’ Approach to Sales Force Allocations” (January–February 1974). Mr. Reibstein is the previous HBR author (with Paul W. Farris) of “How Prices, Ad Expenditures, and Profits Are Linked” (November–December 1979).

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Marketing Essentials Course

Accelerate your career with Harvard ManageMentor®. HBR Learning’s online leadership training helps you hone your skills with courses like Marketing Essentials. Earn badges to share on LinkedIn and your resume. Access more than 40 courses trusted by Fortune 500 companies.

Learn how to communicate with your customers—strategically.

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How Prices, Ad Expenditures, and Profits Are Linked

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