Allocating Marketing Resources

MARKETING MIX DECISIONS: NEW PERSPECTIVES AND PRACTICES, Roger A. Kerin and Rob O'Regan, eds., American Marketing Association, Chicago, IL, 2008

Harvard Business School Marketing Research Paper No. 08-069

Posted: 12 Feb 2008 Last revised: 21 Jun 2008

See all articles by Sunil Gupta

Sunil Gupta

Harvard Business School

Thomas J. Steenburgh

University of Virginia - Darden Graduate School of Business

Abstract

Companies spend billions of dollars every year on marketing because it is essential to organic growth. Given these large investments, marketing managers have the responsibility to optimally allocate resources and to demonstrate that their 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 for 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 (e.g., 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 discuss pros and cons of these approaches and illustrate them through applications and case studies.

Keywords: market research, demand estimation, economic impact analysis

JEL Classification: M30, M31

Suggested Citation

Gupta, Sunil and Steenburgh, Thomas J., Allocating Marketing Resources. MARKETING MIX DECISIONS: NEW PERSPECTIVES AND PRACTICES, Roger A. Kerin and Rob O'Regan, eds., American Marketing Association, Chicago, IL, 2008; Harvard Business School Marketing Research Paper No. 08-069. Available at SSRN: https://ssrn.com/abstract=1091251

Sunil Gupta (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Thomas J. Steenburgh

University of Virginia - Darden Graduate School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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