THE VALUE OF COMPETITION AMONG AGENCIES IN DEVELOPING AD CAMPAIGNS - REVISITING GROSS MODEL

Conventionally, an advertiser's spending on the creative component of an advertising campaign is small in relation to the media budget and i s channeled exclusively to a single advertising agency. Gross challeng ed those conventions more than 20 years ago, using a mathematical mode l of advertising effectiveness. His model suggested spending more on t he creative component and doing so in a competition among several inde pendent sources. The model assumed a normal distribution of effectiven ess of advertisements. Data on response to consumer product ads show t hat the distribution of effectiveness is not normal, but quite skewed. Using Monte Carlo simulations and Gross's framework the authors find that the skewness strengthens the case for competition. Shifting a siz able percentage of a campaign budget away from media spending and into competitive generation of creative renderings apparently can be very profitable.