An Optimum Budget Allocation Model for Dynamic, Interacting Market Segments

Abstract

This paper formulates a model for determining the optimal allocation of a given advertising budget over M interacting market segments and a time domain of T periods. Guidance for budget size optimization is provided via a shadow price. The basic input parameters are in terms of sales saturation levels and advertising elasticities, concepts experienced advertising executives understand and are willing to estimate. Economic and political developments in Western Europe are increasing the interactions among geographically defined segments, and recent development in discrimination techniques may soon make market segmentation a practical strategy for the United States market. In relation to the time domain, the simplistic and often unrealistic constraint of a constant carryover effect is relaxed in that current advertising is hypothesized to generate sales both by creating new customers and by interacting with the residual effects of past advertising (goodwill) thus reinforcing preferences of past customers. This interactive formulation relating past and future expenditures allows a model user greater flexibility in specifying the relationship between advertising and sales. The mathematical programming technique used is a form of convex programming.

Pooling and Dynamic Forgetting Effects in Multitheme Advertising: Tracking the Advertising Sales Relationship with Particle Filters

“…For example, Ray et al (1971), drawing on several experimental studies, concluded that copy theme, brand awareness, and competitive advertising could all shape advertising decay. In addition, Gensch and Welam (1973) showed analytically that a fixed carryover rate could be inconsistent with learning and forgetting theory (Chessa and Murre 2007). That is, using a Nerlove-Arrow-type (1962) formulation, their study demonstrated that the effect on demand in any given period, of advertising in the same period, might be independent of the levels of advertising in all prior periods.…”

“…These studies traditionally employed linear distributed lag models in which the carry over rate (or, conversely, the forgetting rate) was a constant parameter, unaffected by changing factors in the advertising environment. Yet, despite the longevity of this econometric assumption, it appears that forgetting rates could indeed be time varying (Gensch andWelam 1973, Blattberg andJeuland 1981), with past advertising (prior goodwill), competitive advertising, and copy theme all affecting the rates at which advertising decays (Ray et al 1971) over time. It seems reasonable then to suggest that multitheme studies should also consider these dynamic features of advertising decay.…”

Young citizens, values and new/s media

“…The idea of demographics first gave mass communicators an indication that different segments of a population would respond differently to messages (Squire 1988). Demographics, therefore, became a 'segmentation' strategy for marketers of commodities, with the rise in popularity of 'lifestyle' magazines in the 1960s providing new forms of print media for the actualization of such strategies (Gensch and Welam 1973). By the late 1980s, the last vestiges of stable and predictable demographic behaviours, and of relatively stable mass audiences, began to give way to new methods of marketing made possible by increasingly sophisticated data storage and manipulation technologies: databases.…”

Addressing underutilization of consumer health information resource centers: a formative study

“…Topics ranged from respondent role to ways to maximize center usage. Perceptions of current usage and users were also solicited because, when deep penetration into a particular market segment has not yet been achieved, market share can sometimes be increased by promoting a product or service to people who are similar to current customers [18]. After each interview, the notes were typed and sent to the interviewee for comment and correction.…”