You have a finite amount of marketing dollars to spend, and an almost infinite number of ways to spend them.
How much should I earmark for word-of-mouth to existing customers versus WOM to non-customers? Which products do I highlight in a catalog, and whom do I send it to? Should I segment messages by target audiences, and, if so, which targets do I emphasize? Where do social networking sites fit in? Is TV advertising a waste of time?
Questions such as these are asked every day by marketing managers in every industry. A framework to help you work through these questions is found in a recent chapter by Harvard Business School professors Sunil Gupta and Thomas J. Steenburgh, titled Allocating Marketing Resources. Read an interview with the researchers on HBS Working Knowledge. According to the authors:
“Many interesting and useful techniques have been developed over the past 20 years that might be brought to bear in addressing these problems, and we thought it would be great to step back and develop a framework that helps managers think about how these methods are useful and where they might be applied.”
The two-part framework begins with the manager estimating a model of demand, the results of which are dialed in to an optimization model. “The results,” according to the article, “will help managers decide which existing customers to target, which new customers to acquire, and how to balance resources between promotions and advertising, allocate promotional dollars, and determine the effectiveness of word-of-mouth communications.”
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