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Optimal risk in marketing resource allocation

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  • Alejandro Balbas

    ()

  • Mercedes Esteban Bravo

    ()

  • Jose M. Vidal-Sanz

    ()

Abstract

Marketing 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 Info

Paper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb090868.

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Date of creation: Oct 2009
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Handle: RePEc:cte:wbrepe:wb090868

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Keywords: Resource allocation; Coherent risk measures; Optimization; Sales response models;

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  1. 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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