Over the last several decades, advertising effects on sales have been
studied without appropriately taking into consideration
competitors' advertising activities. As a result, advertisers
often instinctively match competitors' spending proportionately
when it is monitored. The weakness of such a competitive parity
approach is that they implicitly assume zero-sum competition only. This
study identifies a variety of competitive conditions under which better
budgeting strategies can be formulated. Specifically, four types of
competition are conceptualized based on how an advertiser and its
competitors affect each other's sales according to level of media
advertising spending. In addition, appropriate strategies for setting
advertising budgets to deal with each situation are discussed. A
mathematical method is developed to measure advertising effectiveness
for both the advertiser and competitors on sales of a focal brand. The
method computes current and carryover effects, identifies in which type
of competition the advertiser is operating, and, accordingly,
determines which budgeting strategy best suits the situation. In an
empirical illustration, the method was applied to data collected
monthly over eight years. The analyzed product was Scotch whisky sold
in Thailand.