Advertising Budget Setting Based on Brand Value

Abstract

The purpose of this paper is to explore the possibility of converting communication effects of advertising measured qualitatively into brand value measured monetarily in advertising budget setting. In the first half of the paper, we build a model to calculate net present value of advertising budget as an investment with little consideration of the concepts of brand in advertising and marketing research. And, in the second half, we try to revise the model to make possible the introduction of non-monetary factors to advertising budget setting. A key of the revision is the new estimation method of discount rate in discounted cash flow analysis. Estimated discount rate used in the revised model based on the concepts of brand equity means the perceived risk of future incremental cash flow. Stakeholders perceive relatively low risk of future cash flow accrued from strong brands. Therefore, building strong brand through advertising is linked to increasing brand value measured in monetary terms. Our new way of thinking can be applied to setting of advertising budget as strategic investment.