A Smarter Way to Allocate Your Advertising Budget - What Movies Can Teach Us About Smarter Marketing Strategies
Whenever I want to watch a movie I am always impressed by the many different ways and channels in which the movies are advertised. As a researcher I felt that the film studios face a difficult task to decide on their advertising spendings. Are they relying on gut feeling as many companies still do. What if the movie industry offers a smarter, data-driven approach?
From Gut Feeling to Data-Driven Decisions
How should companies allocate their advertising budget across different products, regions, or marketing channels? Too often, the answer relies on impulse, internal politics, or historical practice. But as we’ve seen in the movie industry, there is a better way – grounded in data and research.
Lessons From the Movie Business
In a 2018 article published in the Journal of Advertising Research, Lim and Li studied advertising for movies released across sequential stages – like theaters followed by video-on-demand. Their recommendation: allocate budget proportionally to the effectiveness of each channel, measured by advertising elasticity – how much additional sales in % result from a percentage increase in spend.
It’s a good starting point. But not enough.
The Missing Piece: Market Size Matters
In my own research on advertising rules for movie versions marketed in sequential distribution stages, I found that elasticity alone is insufficient, see my article “Optimal Rules for Advertising Budget Allocation Across Movie Versions Marketed in Sequential Distribution Stages”. What’s missing is the scale of each channel or region. In other words: effectiveness must be weighed against potential reach.
Imagine a logistics provider promoting services across different transport modes – trucks, trains, and planes. Even if advertising for trains shows high elasticity, it makes little sense to invest heavily if only a small fraction of shipments use rail.
The Improved Rule: Elasticity × Size
The optimal allocation rule multiplies elasticity by the size of the market (or channel). This adjustment can lead to substantial gains. In my movie case study, applying this rule significantly increased profits. The principle is widely applicable.
A good example is an earlier study by Fischer, Wagner, and Frie (2011), which applied this logic to Bayer’s pharma division. Using econometric analysis on a large data set, they reallocated marketing budgets dynamically across countries and activities. The result? Improved performance – and recognition through a practice prize in Marketing Science.
Why It Matters for Logistics and Beyond
Whether you’re in entertainment, logistics, or pharmaceuticals, the message is the same: move beyond intuition. Data analytics allows us to estimate advertising elasticities, and combining them with market size offers a clear, actionable rule for smarter budget allocation.
With the right tools and mindset, we can make advertising spend more efficient – and more impactful.
Prof. Dr. Dr. h.c. Sönke Albers
Prof. Dr. Sönke Albers is Distinguished Research Professor of Marketing and Innovation at KLU. He previously served as Rector of WHU, Dean at Kiel University, and Dean of Research at KLU. His research focuses on marketing planning, sales management, and innovation diffusion. He has received numerous honors, including the EMAC Distinguished Marketing Scholar Award and the AMA Lifetime Achievement Award.
