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Optimal risk in marketing resource allocation

Jose Vidal-Sanz, Alejandro Balbás and Mercedes Esteban-Bravo ()

DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa

Abstract: Marketing resource allocation is increasingly based on the optimization of expected returns on investment. If the investment is implemented in a large number of repetitive and relatively independent simple decisions, it is an acceptable method, but risk must be considered otherwise. The Markowitz classical mean-deviation approach to value marketing activities is of limited use when the probability distributions of the returns are asymmetric (a common case in marketing). In this paper we consider a unifying treatment for optimal marketing resource allocation and valuation of marketing investments in risky markets where returns can be asymmetric, using coherent risk measures recently developed in finance. We propose a set of first order conditions for the solution, and present a numerical algorithm for the computation of the optimal plan. We use this approach to design optimal advertisement investments in sales response management

Keywords: Resource; allocation; Coherent; risk; measures; Optimization; Sales; response; models (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-mkt and nep-rmg
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