Optimal advertising duration for profit maximization

Abstract

The current research elucidates the advertising scheme of automotive innovation by incorporating the various stages of the product life cycle. The study proposes an empirical model for the automotive industry to evaluate a time-point known as a switch-point or a take-off point at which firms should modify the advertising and sales promotion strategies to boost sales volume. The problem applies a time-series innovation diffusion model wherein adoption rate changes when a product enters a growth stage and then again when the company stops the advertising campaign in the maturity stage. The present paper develops a profit maximization problem, which optimizes the overall advertising duration and advertising take-off point. A numerical illustration is provided using the actual sales data of automobile industries, and sensitivity analysis is further performed to validate the effect of critical parameters on the optimization problem.

Keywords:

• automotive industry
• advertising take-off point
• optimal advertising decisions
• profit maximization
• product life cycle stages
• switch-point
• technology diffusion

Acknowledgements

The authors are thankful to all the anonymous reviewers for giving their valuable inputs, which have brought in a huge change in the presentation of the article.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Data obtained from Team-bhp, http://www.team-bhp.com/, accessed date: 3 July 2015 and Motorbeam, http://www.motorbeam.com/, accessed date: 3 July 2015.

Additional information

Funding

The research work presented in this paper is supported by the grants to the first and third authors from DST, via DST PURSE phase II, India.