How Corporate Cultures Drive Advertising and Promotion Budgets: Best Practices Combine Heuristics and Algorithmic Tools

Douglas West

King's College London

John B. Ford

Old Dominion University

Paul W. Farris

University of Virginia Darden School of business

Management slant

  • 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.