MARK3054 Lecture Notes - Lecture 9: Resource Allocation
Topic 9: Resource Allocation using Market Response Models (Advertising)
Resource allocation:
Resources are needed for marketing activities, but they are limited so must be allocated. How to
allocate?
Resource Allocation Methods:
1. Affordable Method (whatever they can afford)
2. Percentage of sales method
3. Inertia Method (whatever was spent last year)
4. Competitive Parity Method (what competitors are spending)
5. Objective/Task method (budget given by task i.e. 1mil to market this new product)
6. Model-based approach
Market Response Model System
The market response model moderates the inputs to determine what kind of outputs are achieved.
If outputs are not achieving objectives, then we must adjust our inputs. By using historical data, we
know that a 20% increase in advertising spend leads to 30% increase in sales. By knowing this, we
can create a mathematical model to calculate the expected observed market output based on the
marketing input. Basically, the market response model describes how the market will respond (i.e.
outputs) to different levels of marketing inputs. Knowing this helps us optimise resource allocation.
Lecture Model: measures how many sales dollars are achieved by each advertising dollar. Also 2
extreme points:
1. Zero advertising: even with no advertising, you can expect a certain level of sales
2. Saturation advertising: an upper limit of how much people will purchase your products,
regardless of how much you spend on advertising
ADBUDG Response Function
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Topic 9: resource allocation using market response models (advertising) Resources are needed for marketing activities, but they are limited so must be allocated. The market response model moderates the inputs to determine what kind of outputs are achieved. If outputs are not achieving objectives, then we must adjust our inputs. By using historical data, we know that a 20% increase in advertising spend leads to 30% increase in sales. By knowing this, we can create a mathematical model to calculate the expected observed market output based on the marketing input. Basically, the market response model describes how the market will respond (i. e. outputs) to different levels of marketing inputs. Lecture model: measures how many sales dollars are achieved by each advertising dollar. Adbudg response function c and d determine the shape of the curve. Market response data from: estimate from historical data, conduct experiments (difficult to execute in offline, elicit managerial judgement (quick, builds consensus, encourages systematic thinking)
