Revisiting and revising Alderson’s formula to measure the productivity of the aggregate marketing system

Abstract

In response to a swirling controversy over high costs, wastes and inefficiencies in marketing, Wroe Alderson (1948) proposed a novel formula to measure the productivity (or efficiency) of the marketing system. His dual input—output formulation represented a significant conceptual advance over marketing efficiency measures that had gone before or have come after. Alderson’s main contribution was to add a measure of household purchasing productivity to the standard economic formulation of the aggregate marketing productivity of business firms. There were, however, conceptual, operational and empirical problems with the formula, particularly with Alderson’s inclusion of household buying behavior. Because the conceptual challenges appeared so intractable and also because the difficulties of measurement seemed so insurmountable, the formula has long been relegated to the scrapheap of marketing history. Conceptual advances in marketing theory, particularly in light of Alderson’s later theoretical work, along with the availability of data sources hitherto unavailable, now make empirically testing the efficiency formula a realistic possibility. Consequently, it is worth revisiting the formula and reexamining the conceptual challenges so that one of Alderson’s most brilliant theoretical contributions to marketing thought may finally be conceptually resurrected and empirically tested.