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Optimal Advertising with Stochastic Demand

Author

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  • George E. Monahan

    (Washington University)

Abstract

A stochastic, sequential model is developed to determine optimal advertising expenditures as a function of product maturity and past advertising. Random demand for the product depends upon an aggregate measure of current and past advertising called "goodwill," and the position of the product in its life cycle measured by sales-to-date. Conditions on the parameters of the model are established that insure that it is optimal to advertise less as the product matures. Additional characteristics of the optimal advertising policy are also established.

Suggested Citation

  • George E. Monahan, 1983. "Optimal Advertising with Stochastic Demand," Management Science, INFORMS, vol. 29(1), pages 106-117, January.
    • Handle: RePEc:inm:ormnsc:v:29:y:1983:i:1:p:106-117
    DOI: 10.1287/mnsc.29.1.106
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    Cited by:

    1. Gordon Burtch & Diwakar Gupta & Paola Martin, 2021. "Referral Timing and Fundraising Success in Crowdfunding," Manufacturing & Service Operations Management, INFORMS, vol. 23(3), pages 676-694, May.
    2. Matthew Sobel, 2013. "Discounting axioms imply risk neutrality," Annals of Operations Research, Springer, vol. 208(1), pages 417-432, September.
    3. Danaher, Peter J. & Rust, Roland T., 1996. "Determining the optimal return on investment for an advertising campaign," European Journal of Operational Research, Elsevier, vol. 95(3), pages 511-521, December.

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