Performance of Efficiency Measurement Models - a Study of Brand Advertising Efficiency in the German Car Industry

This paper compares three different models of efficiency measurement on the basis of multiple inputs and outputs. Various data envelopment models are compared with principle component analysis and with a naïve model that derives a single efficiency score for every unit by averaging all possible output-input ratios. The data set for this comparison consists of multiple, media-specific brand advertising expenditures of 21 car makers in the German car market for the years 1998-2001 and the resulting advertising effects. The analysis shows that DEA on the basis of a constant return to scales model, principal component analysis and the naïve model, produce almost identical results in terms of the overall advertising efficiency of each brand. It is argued that this similarity is due to the linear approach of these models. Differences are found between VRS and CRS models. This findings suggests that the results of efficiency measurement depend on the use of variable or constant-return-to-scale models and that researchers must select carefully between VRS and CRS according to the specifics of the underlying production function.