Marketing budget allocation

Marketing budget allocation

On February 21st, 2013, posted in: Marketing budget allocation by Comments Off on Marketing budget allocation

Optimal allocation of the marketing budget

With UK online marketing expenditure continuing to rise, optimal allocation of the marketing budget across both digital and traditional media plays a key role in maximising business performance.

Accurate marketing budget allocation depends on three key factors: a bespoke economic model of the client business, precise quantification of marketing response curves and efficient optimisation algorithms. At Marketscience Consulting, we specialise in all three elements. 

Firstly, we work with clients to build the most appropriate model of the business, covering consumer demand and path to purchase across the whole product and brand portfolio. A representative model structure is depicted below.

ecosystem3

Models trace the consumer journey from natural online search to website research through to online and offline purchase. 

Marketing investments and price impact each step of the journey, where seasonality, distribution, competition and economic conditions act as controls.

The process fully describes the role of digital and traditional marketing in driving business outcomes.

Secondly, dynamic econometric techniques are used to parameterise the  economic model, quantifying the impact of digital and traditional marketing investments on sales outcomes. Impacts are typically presented in the form of short-term marketing response curves, where diminishing returns to investment reflect the decreasing marginal impact as marketing weight increases. Various non-linear functional forms can be used, ranging from logarithmic transforms to negative exponential functions. The latter are often preferable, as they imply natural saturation limits equal to the average maximum expected uplift over baseline sales. 

Finally, powerful search algorithms are used to balance marginal returns across all relevant marketing levers to maximise revenues or profits throughout the client portfolio. Results based on short-term response curves often tend to favour promotional activity over media investments. For longer-term budget allocation, brand equity analysis is required to quantify the brand building effects of media, together with the potential brand denigrating effects of excessive promotions. Incorporating long-run response in this way provides a more holistic strategic balance. See our paper on long-term marketing effects for details.

For more details on budget allocation, see our web page on Portfolio Budget Allocation or contact us.

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