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Analysing consumer segments to budget for loyalty and promotion programmes and maximize market share

Author

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  • H-Y Tsao

    (Takming University of Science and Technology, Taipei)

  • L Pitt

    (Simon Fraser University)

  • C Campbell

    (Simon Fraser University)

Abstract

This paper seeks to provide a framework and benchmark for the allocation of marketing budget between promotion and loyalty programmes using an approach that combines a Markov-type market share model and the Lagrange multiplier method to maximize market share. The Lagrange multiplier method, that takes into account the market share and the loyalty effect observable in preceding periods along with the estimated promotional effects, permits the allocation to be optimized and future market share to be maximized. Then, loyalty-based consumer segment are used to explain why the budgeting exercise can achieve the maximization objective. To this end, the study uses consumer panel data concerning three categories, namely, adult milk powder, shampoo, and detergent. It extends previous research on loyalty-based segmentation by focusing on the budget allocation between the two options of loyalty enhancement and promotion programming. A Budget Allocation Grid for Loyalty-based Segmentation is proposed as an aid to understand budget allocation between loyalty and promotion programmes based on the relative sizes of exclusive-loyalty and variety-seeking segments.

Suggested Citation

  • H-Y Tsao & L Pitt & C Campbell, 2010. "Analysing consumer segments to budget for loyalty and promotion programmes and maximize market share," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(10), pages 1523-1529, October.
    • Handle: RePEc:pal:jorsoc:v:61:y:2010:i:10:d:10.1057_jors.2009.117
    DOI: 10.1057/jors.2009.117
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    References listed on IDEAS

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    Cited by:

    1. Hsiu-Yuan Tsao, 2013. "Budget allocation for customer acquisition and retention while balancing market share growth and customer equity," Marketing Letters, Springer, vol. 24(1), pages 1-11, March.
    2. Hsiu-Yuan Tsao & Lucy M. Matthews & Victoria L. Crittenden, 2012. "Balancing Market Share Growth And Customer Profitability: Budget Allocation For Customer Acquisition And Retention," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 3(2).

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