DYNAMIC OPTIMAL BUDGET ALLOCATION FOR INTEGRATED MARKETING CONSIDERING PERSISTENCE

Abstract

Aiming at forming dynamic optimal integrated marketing policies, we build a budget allocation model considering both current effects and sustained ones. The model includes multiple time periods and multiple marketing tools which interact through a common resource pool as well as through delayed cross influences on each other's sales, reflecting the nature of "integrated marketing" and its dynamics. In our study, marginal analysis is used to illuminate the structure of optimal policy. We derive some analytical results which have managerial implications and give strong supports to empirical actions in marketing. Our results are consistent with those in some resource allocations problems, but different from those in the others. We illustrate the application of our model by demonstrating a case of a beauty salon in Xi'an, China. We show how to optimally allocate budgets between different sales promotion components so as to maximize the profits of beauty product and service companies.