TAILIEUCHUNG - Allocating Marketing Resources by Sunil Gupta Thomas J. Steenburgh

The first-half decline was led by falling local and national revenues, down 6% to $ billion and 11% to $ billion, respectively. These figures are in line with recent survey results showing advertisers are cutting back on spending during the economic slowdown; traditional media like newspapers, radio, and magazines are taking some of the biggest hits. Continuing another trend, radio stations in smaller markets performed much better than counterparts in midsized and larger markets, according to Jim Boyle, a radio analyst with CL King and Associates. Considered separately, radio stations in smaller markets saw revenue up 2%. | 08-069 Allocating Marketing Resources Sunil Gupta Thomas J. Steenburgh Copyright 2008 by Sunil Gupta and Thomas J. Steenburgh Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author. Allocating Marketing Resources Sunil Gupta Thomas Steenburgh1 January 28 2008 1 Sunil Gupta sgupta@ is Edward W. Carter Professor of Business Administration and Thomas Steenburgh tsteenburgh@ is Associate Professor of Business Administration at the Harvard Business School Soldiers Field Boston MA 02163. Allocating Marketing Resources Abstract Marketing is essential for the organic growth of a company. Not surprisingly firms spend billions of dollars on marketing. Given these large investments marketing managers have the responsibility to optimally allocate these resources and demonstrate that these investments generate appropriate returns for the firm. In this chapter we highlight a two-stage process for marketing resource allocation. In stage one a model of demand is estimated. This model empirically assesses the impact of marketing actions on consumer demand of a company s product. In stage two estimates from the demand model are used as input in an optimization model that attempts to maximize profits. This stage takes into account costs as well as firm s objectives and constraints . minimum market share requirement . Over the last several decades marketing researchers and practitioners have adopted various methods and approaches that explicitly or implicitly follow these two stages. We have categorized these approaches into a 3x3 matrix which suggests three different approaches for stage-one demand estimation decision calculus experiments and econometric methods and three different methods for stage-two economic impact analysis descriptive what-if and formal optimization approach . We .

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