Effectiveness of the Advertising Expenditure of Australian Banks

The Australian banking system was subject to extensive measures of deregulation in the 1980s. As a result there has been a dramatic increase in marketing research and a tendency to rely more on advertising in maintaining and expanding market shares. Attempts to measure the effectiveness of the advertising of a number of Australian banks. Tests static and dynamic optimal advertising criteria and examines, using a simultaneous‐equations model, the interdependence between market shares and advertising of Australian banks. Short‐term analysis seems to suggest that the actual advertising/revenue ratios of Australian banks are much higher than the optimal ratios. Also Australian banks seem to follow a long‐run profit maximization policy with respect to their advertising expenditure. The banks seem to give a positive shadow price to the stock of goodwill. Moreoever, both banks and rival advertising exert a significant influence on the competitive position of Australian banks, as given by their market shares. Also shows that rates of return on the advertising of the small banks are much lower than those of the large banks.