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Exceptional Paper--ADVISOR 2: Modeling the Marketing Mix Decision for Industrial Products

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  • Gary L. Lilien

    (Massachusetts Institute of Technology)

Abstract

This paper reports the results of the ADVISOR 2 study, aimed at providing an understanding of and guidance for marketing mix decisions for industrial products. The study involved 22 companies and 131 products. Although cross-sectional in nature, justification is presented for using the descriptive results as guidelines for marketing mix decisions. Models are presented for advertising expenditures, marketing expenditures, marketing budget allocations, year-to-year changes in advertising spending and for selection of distribution channels. The level of marketing expenditures and the split of marketing into advertising and personal setting are shown to be affected by a few, general product and market characteristics of which product sales and the number of customers are key. It is shown that it is fruitful to study the advertising budget as advertising = (advertising/marketing) \times marketing; i.e., a marketing budget is set and then a split of that budget into personal and impersonal communications is made. This two-stage view clarifies the role of different product and market characteristics in the models. The change in advertising spending is related to changes in market share, changes in product plans and changes in the number of competitors modified by the number of customers, their concentration and the size of the advertising budget. The decision to use a direct channel of distribution (primarily salesforce) is affected by the size of the firm, the size of an average order, the stage in the product's life cycle, the complexity of the product, the fraction of the product's sales made-to-order and the purchase frequency of the product. A discussion of the use of the ADVISOR models both for marketing decision making and for marketing researchers and model builders is included.

Suggested Citation

  • Gary L. Lilien, 1979. "Exceptional Paper--ADVISOR 2: Modeling the Marketing Mix Decision for Industrial Products," Management Science, INFORMS, vol. 25(2), pages 191-204, February.
    • Handle: RePEc:inm:ormnsc:v:25:y:1979:i:2:p:191-204
    DOI: 10.1287/mnsc.25.2.191
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    Cited by:

    1. Watson, George F. & Worm, Stefan & Palmatier, Robert W. & Ganesan, Shankar, 2015. "The Evolution of Marketing Channels: Trends and Research Directions," Journal of Retailing, Elsevier, vol. 91(4), pages 546-568.
    2. Erin Anderson, 2008. "The Salesperson as Outside Agent or Employee: A Transaction Cost Analysis," Marketing Science, INFORMS, vol. 27(1), pages 70-84, 01-02.
    3. McNaughton, Rod B., 1996. "Foreign market channel integration decisions of Canadian computer software firms," International Business Review, Elsevier, vol. 5(1), pages 23-52, February.
    4. Sharma, Amalesh & Cosguner, Koray & Sharma, Tarun K. & Motiani, Manoj, 2021. "Channel Intermediaries and Manufacturer Performance: An Exploratory Investigation in an Emerging Market," Journal of Retailing, Elsevier, vol. 97(4), pages 639-657.
    5. R B McNaughton, 1999. "Transaction Cost Analysis and the Methodology of Foreign-Market Entry-Mode Studies," Environment and Planning A, , vol. 31(4), pages 575-596, April.
    6. Kim, Keysuk, 2001. "On the effects of customer conditions on distributor commitment and supplier commitment in industrial channels of distribution," Journal of Business Research, Elsevier, vol. 51(2), pages 87-99, February.
    7. Markovitch, Dmitri G. & Huang, Dongling & Ye, Pengfei, 2020. "Marketing intensity and firm performance: Contrasting the insights based on actual marketing expenditure and its SG&A proxy," Journal of Business Research, Elsevier, vol. 118(C), pages 223-239.
    8. Albers, Sönke, 2012. "Optimizable and implementable aggregate response modeling for marketing decision support," International Journal of Research in Marketing, Elsevier, vol. 29(2), pages 111-122.
    9. Svendsen, Mons Freng & Haugland, Sven A., 2011. "Host country institutional pressures and cross-border relationship governance," International Business Review, Elsevier, vol. 20(3), pages 324-337, June.
    10. Larisa Kovalenko & Alina Sorescu & Mark B. Houston, 2022. "What brand do I use for my new product? The impact of new product branding decisions on firm value," Journal of the Academy of Marketing Science, Springer, vol. 50(2), pages 338-365, March.
    11. Fernández Olmos, Marta, 2010. "The performance implications of "grow or buy" decisions in the wine industry," Food Policy, Elsevier, vol. 35(3), pages 256-264, June.
    12. Yu. V. Volodin & P. A. Podkovyrov, 2018. "International Market Expansion," Strategic decisions and risk management, Real Economy Publishing House, issue 4.
    13. Luis Vázquez, 2008. "Complementarities between franchise contract duration and multi-unit propensity in franchise systems," The Service Industries Journal, Taylor & Francis Journals, vol. 28(8), pages 1093-1105, October.
    14. Todorova, Tamara, 2010. "Vertical Integration in High-Transaction Cost Sectors: The Case of the Bulgarian Pharmaceutical Industry," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2 (Winter), pages 127-138.

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