Promotional Resource Allocation for a Product Incorporating Segment Specific and Spectrum Effect of Promotion

Abstract

Firms invest a huge proportion of their resources in promotion to acquire higher adoption of their products. To get maximum possible returns from promotional resources judicious and effective spending is essential, especially in a segmented market. Mass and differentiated market promotion are typically two different techniques of promotion used in the segmented market. With mass promotion product is promoted in the entire market using a common strategy, thereby creating a spectrum effect in all segments. Differentiated market promotion targets the segments specifically. In this paper we formulate a mathematical programming problem to optimally allocate the limited promotional resources for mass market promotion and differentiated market promotion among various segments of the market, maximizing the total sales measured through product adoption under budgetary constraint and minimum target sales level constraints in each segment. A recent innovation diffusion model is used to measure the adoption in each segment which describes the sales through the combined effect of mass and differentiated promotion. The solution procedure has been discussed using NLPP methods. The optimization model is extended incorporating aspiration constraint on total sales from all the segments. Such a constraint can result in an infeasible problem. To obtain best compromised solution, differential evolution approach is used. Results are demonstrated through a numerical illustration.