Practice Prize Winner---Dynamic Marketing Budget Allocation Across Countries, Products, and Marketing Activities

Authors:
Marc Fischer;Sönke Albers;Nils Wagner;Monika Frie
Affiliations:
University of Cologne, D-50923 Cologne, Germany;Kühne Logistics University, 20457 Hamburg, Germany;University of Passau, D-94032 Passau, Germany;Bayer Schering Pharma AG, Berlin, Germany
Venue:
Marketing Science
Year:
2011

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Abstract

Previous research on marketing budget decisions has shown that profit improvement from better allocation across products or regions is much higher than from improving the overall budget. However, despite its high managerial relevance, contributions by marketing scholars are rare. In this paper, we introduce an innovative and feasible solution to the dynamic marketing budget allocation problem for multiproduct, multicountry firms. Specifically, our decision support model allows determining near-optimal marketing budgets at the country--product--marketing--activity level in an Excel-supported environment each year. The model accounts for marketing dynamics and a product's growth potential as well as for trade-offs with respect to marketing effectiveness and profit contribution. The model has been successfully implemented at Bayer, one the world's largest pharmaceutical and chemical firms. The profit improvement potential is more than 50% and worth nearly €500 million in incremental discounted cash flows.