Portfolio budget allocation

Budget Allocation

Efficient allocation of media and promotional investments across the product and brand portfolio is key to optimal business performance.

Quantification of marketing ROI is the first step in this process and provides an historical snapshot of marketing performance. Portfolio budget allocation takes the next step and guides decisions on the optimal allocation of the next pound of marketing spend.

Marketscience Consulting constructs bespoke budget allocation tools to assist clients in optimal allocation of marketing investments at all levels of the business.

Portfolio scope

Dynamic marketing mix models quantify marginal response and ROI of marketing investment across all relevant parts of the client portfolio – by country.

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Marketing response curves

Estimated marketing response curves quantify the additional sales volume resulting from the next pound spent on marketing investments, incorporating both short-term impact and long-term brand building effects. Response typically embodies diminishing returns reflecting the decreasing marginal impact as marketing weight increases.

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The slope of the response curve reflects the degree of diminishing marginal returns.

Steeper slopes indicate a more rapid rate of increase to saturation. This occurs when high reach is quickly achieved, followed by repeated exposures to the same audience.

The upper limit quantifies the maximum attainable impact and is equivalent to complete saturation.

 

Budget allocation

Powerful algorithms allocate marketing investments across products, brands, categories and markets. Optimal allocation is achieved when marginal rates of return across all estimated response curves are balanced. Optimal media laydown is an integral part of the process, with additional budget allocated to periods of higher seasonal and baseline demand to maximise marketing incremental.

The recommended budget allocation depends on specific business objectives, such as maximisation of marketing revenues or profits or minimisation of costs.

  • Maximising revenues

The typical business challenge is maximisation of marketing revenues across the defined portfolio under fixed marketing budgets. In this case, optimal allocation focuses on the relative effectiveness between marketing channels whilst maintaining the overall marketing spend constant.

  • Minimising costs

In circumstances where business units are directed to cut costs, optimal allocation focuses on minimising marketing spend to achieve a desired short-term revenue outcome. In this scenario, total budget is no longer fixed and favours areas of the response curve where marginal impact is higher at lower levels of investment.  

  • Maximising profits

Where the business focus is on the overall profitability of marketing investment, the relevant objective is to maximise the net difference between revenue and costs. Under these circumstances, optimisation focuses on maximising total portfolio ROI.

For all types of business objective, the ability to impose specific spending constraints is critical. Allocation to paid search, for example, sometimes requires maximum constraints due to a limit in the number of keywords that can be purchased. On the other hand, minimum constraints may need to be set since many marketing channels require minimum threshold levels of investment, below which response is negligible.   

Marketscience Consulting budget allocation tools accurately quantify the necessary marketing investments to achieve each relevant business objective.