Advertising and Competition

A critical aspect of the advertising budgeting process involves competitive issues—anticipated spending levels of major competitors, effects that competitive advertising may have on the firm’s market share, sales, and profit, and the interactive nature of a competitor’s advertising with a firm’s own. Competition is ignored only at the firm’s peril; empirical studies (e.g. Little 1979; also see the empirical survey below) have shown quite clearly that competitive advertising can have a direct, and negative, effect on a company’s market share. Also, management practice appears to recognize the importance of competition; in a survey of leading U.S. advertisers, Lancaster and Stern (1983) reveal that, among various general characteristics describing the advertising budgeting process, “competitive effects” were considered by 52% of the sample (second only to “communication effects” at 55%).