Assessing advertising media spending inefficiencies in generating sales

While it is widely believed that advertising media spending may not be optimal or efficient, it is not easy to measure the inefficiency, or the potential loss of sales due to inefficient ad spending. Advertising media spending efficiency needs to be measured and benchmarked. Here two approaches are presented and compared to evaluate top 100 advertisers' media spending inefficiency. The two methods are a nonparametric approach called Data Envelopment Analysis (DEA) and a parametric approach called Stochastic Frontier (SF). Results show that top 100 marketers' advertising spending in print, broadcast, and outdoor media are not efficient and could bring in 20% more sales. Results also show that the two methods may not always produce the same results. Therefore, it is suggested that both approaches be used in all applications.