Advertising Budget Allocation under Uncertainty

This article presents a model for the allocation of an advertising budget to geographic market segments, or territories, when the sales response to advertising in each segment is characterized by a probability distribution. It is shown that allocation decisions that are based on the expected sales response may be associated with a relatively large degree of risk and, therefore, non-optimal to a risk-averse manager. The model derives an "efficient frontier" in terms of the expected profit and its variance resulting from alternative budget allocations. The manager then chooses the optimal allocation based on his/her preference function.

[1]  Doyle L. Weiss,et al.  An Analysis of Competitive Market Behavior , 1974 .

[2]  V. K. Srivastava,et al.  Estimation of seemingly unrelated regression equations: A brief survey , 1979 .

[3]  M. Moriarty,et al.  Cross-Sectional, Time-Series Issues in the Analysis of Marketing Decision Variables , 1975 .

[4]  S. J. Press,et al.  Applied Multivariate Analysis. , 1973 .

[5]  A. Zellner.  An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests for Aggregation Bias , 1962 .

[6]  Neil E. Beckwith.  Multivariate Analysis of Sales Responses of Competing Brands to Advertising , 1972 .

[7]  J. Lambin.  A Computer On-Line Marketing Mix Model , 1972 .

[8]  Fred S. Zufryden,et al.  Media Scheduling: A Stochastic Dynamic Model Approach , 1973 .

[9]  David P. Baron,et al.  Investment Policy, Optimality, and the Mean‐Variance Model , 1979 .

[10]  W. Sharpe.  Portfolio Theory and Capital Markets , 1970 .

[11]  P. Kotler.  Marketing Decision Making: A Model-building Approach , 1971 .

[12]  A. Ronald Gallant,et al.  Three-stage least-squares estimation for a system of simultaneous, nonlinear, implicit equations , 1977 .

[13]  J. Simon.  The shape of the advertising response function , 1980 .

[14]  Randall L. Schultz,et al.  A Study of Marketing Generalizations , 1980 .

[15]  Kristian S. Palda.  The Measurement of Cumulative Advertising Effects , 1965 .

[16]  Yehuda Kahane,et al.  Determination of the Product Mix and the Business Policy of an Insurance Company---A Portfolio Approach , 1977 .

[17]  V. Srinivasan,et al.  Decomposition of a Multi-Period Media Scheduling Model in Terms of Single Period Equivalents , 1976 .

[18]  A. Wildt,et al.  Multifirm Analysis of Competitive Decision Variables , 1974 .

[19]  D. Gensch,et al.  An Optimum Budget Allocation Model for Dynamic, Interacting Market Segments , 1973 .

[20]  D. Clarke.  Econometric Measurement of the Duration of Advertising Effect on Sales , 1976 .