Advertising for Long-term Shareholder Value

Proposes a general framework for discussing how much to spend on advertising, particularly when the economy slows down.

Advertising for Long-Term Shareholder Value1

Patrick Barwise

I was asked what I thought about the recession. I thought about it and decided not to take part. Sam Walton, Founder of Wal-Mart2

I will first suggest a general framework for discussing how much to spend on advertising, including when the economy slows down. The proposed framework puts particular emphasis on (i) the distinction between short- and long-term effects and (ii) shareholders likely reaction to a firm increasing, maintaining, or cutting advertising investment. This leads to five financial/economic questions which management should ask about any brand...

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