The only rational way to set an advertising budget is to estimate as well as one can the likely sales and cost consequences of each of the range of feasible advertising expenditures and choose the one which maximises the future profit (or other expression of corporate goals) - future earnings being discounted to present values at an appropriate discount rate. Econometrics is one method of estimating the sales effects of recent advertising - this then being taken as a guide to the effect of future advertising.
In a marketing-oriented company producing fast-moving consumer goods, the role of the Marketing Department in developing the budget is central, but it must be carried out within the constraints constituted by the needs and capacities of other departments. Drawing up the budget is such a complex task that there is no theoretical limit to the amount of time, manpower and money which could be devoted to creating and refining it, but it is obvious that in the real world only limited amounts of time can be spent on it by Marketing Management. The first purpose of the model described below is to use that time most effectively. The second purpose is to analyse and explain subsequent deviations from the budget. The origin of the Marketing Planning Model (MAPLAMOD) was a request from top management for an evaluation of the impact of statutory price controls on optimum marketing expenditures.