The first step in developing a sales response function is to specify the general form of the relationship between Wilmore Paper Company's sales and advertising expenditures from the previous 30 quarters through a scatterplot.
The scatterplot shows an S-shaped relationship between WPC's sales and advertising expenditures. The S-shaped response curve illustrates that the high incremental gain in sales from adveritising only continues to a certain point. Starting from the spring of 2004, sales growth starts to slow down signifying that the increase in advertising budget begins to have lesser impact on sales. Therefore, in a relationship like this, continue to increase the advertising budget at the same rate does not always gaurantee that sales will also increase propotionately to it too.