A note on budget allocation for market research and advertising

Hubert Pun and H. Sebastian Heese

International Journal of Production Economics, 2015, vol. 166, issue C, 85-89

Abstract: Firms that introduce new products often conduct market research to reduce the substantial uncertainty in demand. When a fixed budget is assigned to marketing-oriented activity, investments in market research must be balanced against other advertising expenses. We characterize a firm׳s optimal marketing and production decisions for a new product. The larger a firm׳s production cost, the higher is the cost associated with unsold products. Market research increases the forecast accuracy and thus reduces the risk of overage. As a consequence, one might expect that a firm׳s investment in market research should be higher if it faces higher production costs. Interestingly we find that an increase in the production cost may sometimes lead to a decrease in the optimal investment in market research, even when the marketing budget is not restrictive.

Keywords: Marketing-operations interface; Advertising; Market research; Newsvendor model (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527315001280
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:166:y:2015:i:c:p:85-89

DOI: 10.1016/j.ijpe.2015.04.013

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().