Allocation of Marketing Effort Among P Substitutional Products in N Territories^†

Abstract

Frequently, companies face the problem of allocating a given marketing budget in order to maximize their total returns. In this paper we examine the problem of allocating marketing effort, such as advertising, among P substitutional products, distributed in N different sales territories. Two models are discussed. In the first model it is assumed that at most one product is promoted in each sales territory. It is shown that a simple algorithm leads to at least a local optimum in a finite number of steps. In the second model, the restriction of one product per territory is eliminated. Applying a concept of effective effort, the model is transformed to an equivalent separable programming problem, solvable by a “single-pass” algorithm for various forms of response functions. Furthermore, a concept of successive modifications of the objective function is discussed.

^‡Present address: Bell Laboratories, Holmdel, New Jersey.

^‡Present address: Bell Laboratories, Holmdel, New Jersey.