The Long-Term Effects of Advertising Expenditures: Examining the Evidence

January 2014
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The Long-Term Effects of Advertising Expenditures: Examining the Evidence

At a glance

In this Bloomberg BNA article, PwC authors, Nicola Lostumbo and Arpan Sengupta, review the relevant literature on the economic useful life of marketing intangibles, specifically advertising, and recommend a direction to pursue in future research.

While academic results vary based on data and time intervals, it should be evident that there are short-term and long-term effects of advertising on sales. The long-term effect of advertising on sales is found to be approximately twice the magnitude of the short-term effect and is found principally in the second and third years after advertising spend is incurred. This finding is supported by marketing professionals who, in their short-term time horizon (that is, the period in which business decisions are made), understand that return on investment calculations with regard to advertising include both short- and long-term impacts.

The inability to consider advertising’s long-term effects may have implications when it comes to using selected research for purposes outside marketing, such as in transfer pricing settings—specifically, cost sharing and licensing. Tax practitioners must examine the entire body of literature related to advertising useful lives on a holistic basis, incorporating know-how from marketing professionals who make advertising budgeting decisions on a day-to-day basis, prior to arriving at a particular conclusion.