Marketing Budget Allocation Across Countries: The Role of International Business Cycles

Yuri Peers (), Harald J. van Heerde () and Marnik G. Dekimpe ()
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Yuri Peers: Erasmus University Rotterdam, 3062 PA Rotterdam, Netherlands
Harald J. van Heerde: Massey University, Auckland 0745, New Zealand, CentER, Tilburg University, 5037 AB Tilburg, Netherlands
Marnik G. Dekimpe: Tilburg University, 5000 LE Tilburg, Netherlands, KU Leuven, 3000 Leuven, Belgium

Marketing Science, 2017, vol. 36, issue 5, 792-809

Abstract: A key conundrum facing organizations is how to adjust marketing budgets in response to the business cycle. While most firms use procyclical spending (spending less during economic contractions), academic studies often recommend countercyclical spending (spending more during contractions), which begs the following question: What is the right thing to do? The spending problem is compounded further when demand is not just driven by one country’s business cycle, but by the (nonsynchronized) business cycles of multiple countries, as is the case for tourism marketing aiming to attract tourists originating from different countries. We derive insights into the best way to allocate marketing budgets across countries under varying economic conditions. We show that the allocation decisions are driven by the procyclical versus countercyclical nature of three factors: unit sales, marketing effectiveness, and per-unit profit contribution. To study how unit sales and marketing effectiveness respond to the business cycle, we develop a transfer function dynamic hierarchical linear model. We also model the responsiveness of the profit contribution to the business cycle. In an application to New Zealand tourism marketing, we find that a reallocation of the government’s marketing budget could yield an increase in tourist revenues of NZD $121 million.

Keywords: business cycle; optimal allocation; elasticity; recession; international tourism; Bayesian models; regression (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:36:y:2017:i:5:p:792-809

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