Product Allocation of Generic Advertising Funds: A Sales Maximization Approach with an Application to Milk and Cheese in New York City

With the passage of the Dairy and Tobacco Adjustment Act of 1983, dairy farmer investment in product research, advertising and promotion in the United States increases from $60 million to $200 million annually. A key decision faced by the Boards managing these funds is how best to allocate advertising funds among the various dairy products. In this paper an economic model is developed that shows the allocation of funds to fluid milk and cheese that would maximize sales in a given market. the model is applied ti the New York City market with results suggesting that over the study period diverting funds from fluid milk to cheese advertising would have enhanced milk-equivalent sales in the market by as much as 1.17 percent or 8.21 million gallons annually. Alternatively, the model suggests that the same sales level could have been achieved with a different allocation of funds resulting in an estimated 14.6 percent savings in the amount spent advertising the two products