Optimal risk in marketing resource allocation
AbstractMarketing resource allocation is increasingly based on the optimization of expected returns on investment. If the investment is implemented in a large number of repetitive and relatively independent simple decisions, it is an acceptable method, but risk must be considered otherwise. The Markowitz classical mean-deviation approach to value marketing activities is of limited use when the probability distributions of the returns are asymmetric (a common case in marketing). In this paper we consider a unifying treatment for optimal marketing resource allocation and valuation of marketing investments in risky markets where returns can be asymmetric, using coherent risk measures recently developed in finance. We propose a set of first order conditions for the solution, and present a numerical algorithm for the computation of the optimal plan. We use this approach to design optimal advertisement investments in sales response management
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb090868.
Date of creation: Oct 2009
Date of revision:
Resource allocation; Coherent risk measures; Optimization; Sales response models;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-10 (All new papers)
- NEP-MKT-2010-01-10 (Marketing)
- NEP-RMG-2010-01-10 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Leeflang, P.S.H. & Wittink, Dick R., 2000. "Building models for marketing decisions: past, present and future," Research Report 00F20, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
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