How Corporate Cultures Drive Advertising and Promotion Budgets: Best Practices Combine Heuristics and Algorithmic Tools
King's College London
Old Dominion University
University of Virginia Darden School of business
- Budgeting processes used by companies are more complicated than the oft-referenced 'rules of thumb' suggest.
- Nevertheless, the process is not as rational as economists and management scientists would prefer and rarely can be demonstrated to produce profit-optimizing budgets (however profit might be defined).
- Instead, whatever the sophistication of the organization, the budget-setting process often combines heuristics (such as maximum advertising/sales ratios) with analytics (e.g., marketing mix models) to help managers striving to improve company performance.
- Heuristics serve to provide checks on other analytically based budget recommendations and may also help managers deal with risks.
- Recognizing the role that heuristics play in budgeting is the first step toward a much-needed process improvement in marketing budgeting.