Question

Advertising costs as a percentage of sales revenue for soft drink brands with large market shares (such as Coca-Cola and Pepsi-Cola) are lower than for brands with small market shares (Dr.  Pepper, Schweppes, Fresca). This is because:

	A.	Big brands can negotiate lower rates with advertising agencies and media owners
	B.	Advertising campaigns are subject to a large minimum budgets (“indivisibilities”)
	C.	Economies of learning—long-established brands such as Coca-Cola and Pepsi have learned how to be more efficient in their advertising  campaigns
	D.	None of the above.

Answer 1

Advertisement is a expensive process. It requires large minimum budget to initiate.

Again, the sales of these companies with large market share is high, thus the large sales volumes outweights the high cost of advertisement.

But, small companies, being subjected to large minimum budget and lower sales, results in high Advertisement cost as a percentage of sales.

Therefore, the large companies' have advertisement cost as a percentage of sales lower than the smaller companies.

B.	Advertising campaigns are subject to a large minimum budgets (“indivisibilities”)