Market Resource Allocation Research Articles

Dynamic, hard and strategic questions: using optimization to answer a marketing resource allocation question

AbstractFor historical reasons, optimization has traditionally been slightly outside the mainstream of system dynamics. However, computer technology has made both quantitative data more abundant and optimization more feasible. At the same time, modelers are encountering real situations and clients with high‐stakes questions that are nearly impossible to answer without optimization—the systems involved are not only dynamic, and not only highly interconnected, but also combinatorially daunting. In particular, corporate marketers currently make allocation decisions impacting billions of dollars of shareholder value on the basis of intuitive “anchor and adjust” strategies, which can be far from optimal. This article presents an anonymized case study of one such situation. The company is in a high‐tech industry undergoing rapid change. The company needed to fashion a go‐to‐market strategy balancing traditional and unfamiliar markets, an important component of which was allocation of marketing resources. Optimization revealed a potential valuation increase of roughly 30 per cent relative to executives' intuitive allocations. Scenario analysis revealed the basic policy direction (more advertising) to be robust, and in the process resolved several traditional conundrums in dealing with adverse events in the marketplace. Copyright © 2003 John Wiley & Sons, Ltd.

Hysteresis In Market Response: When Is Marketing Spending An Investment?

Conventional wisdom says that it takes ever increasing marketing budgets and/or lower prices to create sustained growth in sales, which may or may not be profitable in the long run. However, some documented cases and conceptual evidence suggest that marketing spending or prices can exhibit hysteresis in market response, a condition where temporary changes in the marketing mix are associated with permanent movements in sales performance. As such, hysteresis creates a long-run investment benefit from marketing actions, which can be highly beneficial to the firm, or detrimental to competition. Yet the assessment and formal implications of market response hysteresis for marketing resource allocation are unexplored. This paper addresses the modeling of marketing hysteresis in three ways: one, it shows how the presence of full vs. partial hysteresis in response may be assessed from longitudinal data on sales and marketing-mix allocations. Two, it develops the link between sales hysteresis and profit hysteresis, and derives the long-run optimal spending rules for a firm whose marketing efforts exhibit some form of hysteresis. Three, it illustrates both the measurement of hysteretic marketing effects and their optimal spending implications for a leading supplier of computer printers. The paper concludes with an agenda for future research in this important, yet under-researched area of marketing strategy.

Managing side effects of cultural tourism development: The case of Zhouzhuang

In recent years Zhouzhuang has been quite successful in developing a mass tourism industry. However, formal analyses of the past experiences of other provinces indicate that there are significant risks in the tourism development policy followed in Zhouzhuang. Although the well preserved and reconstructed physical buildings have facilitated listing on the UNESCO World Heritage List, the traditional canal-town life style, the major attraction of Zhouzhuang, is giving way to commercialization. Quick and easy compensating measures have been adopted to create a staged image of an authentic traditional lifestyle. Precautions should be made now or Zhouzhuang runs the risk of becoming little more than a thematic park with no real cultural or social meaning for tourists or the inhabitants. A system dynamics model has been built for the purpose of developing an understanding of the complex structure of Zhouzhuang tourism development. The model consists of six sectors: physical environment, culture, infrastructure, job market, tourist, and financial resource allocation and promotion. Simulation of the model shows that the time delay, eroding target and the non-linearity are the key internal factors leading to a potential growth and decline tourism development pattern. Further simulations were conducted to examine the impacts of various policy options. The model suggests that the most effective policy for sustainable tourism development is a conservative one that controls and limits the numbers of tourists. It is expected that the model can provide a learning “micro-world” which will facilitate understanding of the complexities of tourism development and serve as a guide to effective policy formulation.

Marketing Engineering at BBDO

Marketing applications were part of the Operations Research Society of America (ORSA) from its beginning in 1953; expectations were optimistic, although a separate College on Marketing was not formed as part of The Institute of Management Science (TIMS) until 1967. It has proven difficult to keep practitioners involved and to get research translated into practice. The BBDO advertising agency began using OR techniques in the 1960s and learned several lessons, such as that an in-house group was needed to build user trust and that models must support decision makers, not try to replace them. The area of new-product introduction was especially challenging and gave rise to our most successful result—the NEWS model. Its application for the introduction of Wrigley's Extra sugar-free gum exemplifies the use of a marketing model by a manufacturer. BBDO has also had success in the areas of established brand modeling and marketing resource allocation. Marketing engineering is a young discipline and can continue to make important contributions if it retains its relation to marketing practice.

Disparate Impact and the Quota Debates: Law, Labor Market Sociology, and Equal Employment Policies

Bringing sociological theory and research to bear on the “quota debates” dogging discussion of federal civil rights legislation in the early 1990s, this article highlights sociology's role in shaping employment law and shows how apparently technical legal arguments about allocating burdens of proof affect labor market resource allocation among the classes, races, and genders. Contrasting institutional-sociological with liberal-legal concepts of discrimination, the article shows why disparate impact theory has been the most sociological approach to Title VII enforcement. It also shows how disparate impact—a theory and method for establishing legally cognizable employment discrimination injurious to women and minorities—is, and is not, related to affirmative action—a policy encompassing a broad range of procedures intended to provide positive consideration to members of groups discriminated against in the past. Finally, a competing incentive framework is used to show that, although disparate impact creates some incentives for employers to adopt quota hiring, such incentives are counter-balanced by major incentives working against race- and gender-based quotas. Major counterincentives stem from disparate impact itself, from other aspects of equal employment law, and from organizational goals shaping business response to the legal environment.

Firm size, rivalry and the extent of the market in endogenous technological change

Evidence shows that firms build their market position by accumulating knowledge protected by secrecy, patents and other appropriation devices. I explore the implications of this fact in a model economy where oligopolistic firms establish in-house R&D programs. In symmetric equilibrium, the number of firms determines concentration and firm size. These determine the scale and the efficiency of R&D operations and the rate of innovation. The number of firms, moreover, is endogenous and determined jointly with the rate of growth by the zero-profit condition. This property yields new results. For example, the scale effect of population size may be negative. The market allocation of resources is not Pareto optimal. I discuss the nature of this distortion.

On Rivalry, Variety and Spillovers in Endogenous Growth

Evidence shows that firms build their market position by consistently investing in R&D over time and accumulating knowledge protected by secrecy, patents and other appropriability devices. To explore the macroeconomic implications of this fact, I construct an economy where oligopolistic firms establish in-house R&D programs to produce a continuous flow of cost-reducing (incremental) innovations. Firms compete for sales and resources. In symmetric equilibrium, the number of firms determines concentration and firm size. These determine the scale and the efficiency of R&D operations and the (average) rate of innovation. If the number of firms is exogenous, one can study the relationship between the number of firms and the rate of growth of the economy. This exercise gives a first intuition about the forces at work. Static economies of scale due to product and knowledge variety yield increasing returns to the number of firms. A large number of firms leads to high output, high (aggregate) R&D, and fast growth. Offsetting this force, market fragmentation leads to small firms, small R&D programs, and slow growth. The number of firms, in addition, must be endogenous and determined jointly with the rate of growth by the zero-profit condition. Price, investment, entry, and exit decisions are now interdependent. In particular, R&D is a fixed (sunk) cost and is negatively related to the number of firms. This feed-back reinforces the market fragmentation effect and yields additional interactions. Many parameters no longer have the effects predicted by standard models. For example, the scale effect of population size is negative. The intuition is simple. Large markets have many firms, high output, and high aggregate R&D. Market fragmentation offsets this force and results in small firms and slow growth. These interactions generate a market allocation of resources that is not Pareto optimal. I discuss the nature of this distortion.

Identifying Market Potential: The Application of Brand Development Indexing to Pleasure Travel

Tourism and travel marketing executives have historically been faced with challenges related to the accurate measurement of market demand and the accurate identification of market potential. Market demand and market potential differ from each other. It is there fore important to understand how they differ with respect to tourism and hospitality services marketing. This study applied brand development indexing (BDI) to tourism. This marketing tool, traditionally used for identifying market potential and resource allocation for goods and products, was found to be very successful in identifying pleasure travel market potential when combined with the proposed opportunity matrix. The study suggests that the utility of brand development indexing for the travel and tourism industry has tremen dous potential for destinations, attractions, and other hospitality services.

Gaps 1n the Employment Strategy of the National Manpower Commission: An Alternative Strategy

The National Manpower Commission (1987-89) in order to meet the unemployment situation envisages generation of an additional l.25 Million work opportunities annually. It envisages an employment target within the macroeconomic framework of a growth rate in GNP at around 8 percent annually. The NMC recommendations were cast within the following parameters. General StrategylParameters (a) Labour force is growing at more than 3 percent annually (the NMC puts it at 3.3 percent) alternatively more than one and a quarter million new people would be entering the labour market every year during 1990s. (b) An annual real G.N.P growth rate of about 8 percent on the present sectoral pattern would be just about sufficient to meet the employment target. (c) The direct employment creating policies can serve to top up the contribution of overall economic growth and cannot be a substitute for it. (d) As a medium term objective-an increase in the capital formation in the economy from 18-19 to 23-24 percent would be necessary. (e) The Commission believes that structural adjustment toward market resource allocation is compatible with high employment policy. (1) Agriculture should no longer be a passive absorber of the rural labourmajor responsibility for labour absorption must shift to sectors other than agriculture. (g) The. small-scale sector must be recognised as the leading sector for employment generation-this recognition must be duly reflected in credit policies and marketing facilities. However, the employment promotion potentials of large industrial enterprises must also be fully realised. Towards this end, it has identified following seven industries: (i) Engineering; (ii) electronics; (iii) textile specially ready made garments;

Aquacultural development in tropical Asia

Differences between inland and coastal aquacultural production systems in Asia are discussed in terms of market orientation, resource allocation and property rights, and scale of operations. The production of shrimp grown in coastal brackish water ponds has featured prominently in aquacultural development programmes in Asia. Emphasis placed on capital‐intensive shrimp production for export, however, has distracted attention from the potential of inland freshwater aquaculture to generate employment opportunities for rural people and food production for domestic consumers. The paper concludes with a discussion of an alternative policy direction for promoting aquacultural development on a socially sound basis, recognizing the need to balance equity and human nutrition with profitability and foreign exchange earnings.

Rights, equity, and economic efficiency

The Adelman-Morris premise that economic development and equity are incompatible is not supported by the evidence of a strong relationship between equality of rights and the income distribution. The premise that equity requires the denial of individual rights and the affirmation of state control is an oxymoron. What has been overlooked in the literature on growth and equity is the effect of the rights structure on both economic efficiency and on the income distribution. The evidence is that free societies have much larger shares of income going to the middle 60 percent of the distribution than is observed in societies where men are not free to choose. In politically open societies compared to politically closed regimes the share of income to the middle three quintiles is: Q2 (10.7 vs. 8.0), Q3 (16.0 vs. 11.5), and Q4 (22.9 vs. 17.9). In the aggregate the shares to the middle quintiles are 49.6 vs. 37.4. In nations that obey the rule of law compared to regimes in which the rights of the state relative to the individual are paramount the comparisons are: Q2 (11.2 vs. 7.4), Q3 (16.3 vs. 10.6), Q4 (23.0 vs. 17.3). Summing the three quintiles yields a comparison of 50.5 vs. 35.3. In countries that have private property, market allocation of resources, and minimum intervention by the state compared to command economies the shares of income to the middle quintiles are: Q2 (10.8 vs. 8.0), Q3 (16.0 vs. 11.1), and Q4 (22.8 vs. 17.7). Aggregated the shares of the middle class in regimes with high levels of economic liberty are 49.6 vs. 36.8 for regimes with restricted private economic rights.

Discretionary behaviour and Soviet economic reform

FOUR COMMON THEMES underline most existing studies of Soviet economic reform since World War II. First, problems have been identified in the logical consistency of reform documents, which have typically sought to reduce administrative planning and avoid a significant expansion of markets simultaneously. Second, reform measures have been consistently criticised as not being far-reaching enough to have a significant impact. Many studies also emphasise political resistance to relinquishing power in the party and government apparatus. Finally, social unease about reforms that involve greater responsibility and risk has also been stressed. The failure of the first wave of comprehensive post-Stalin reforms in 1965 is commonly attributed to these four types of problems. Kontorovich (1988) and Kushnirsky (1982) appeal primarily to the first category, arguing that the Soviettype economic system itself rejected the proposed marginal reductions in central control. Other well known analyses of the 1965 experience, such as Schroeder (1973), emphasise the second type of problem, associating failure with the ultimate decision not to abandon the administrative planning mechanism. Also, the failure of the 1965 reform package is often associated with the rise of Brezhnev and the political 'right' in the late 1960s and early 1970s, while the 'Little Deal' between Brezhnev and Soviet workers provided legitimacy in the social sphere (Millar, 1988). The less ambitious reforms of 1979, 1983 and 1985 received similar analytical treatment. Although the comprehensive decrees of 1987-90 propose at least a partial shift to market resource allocation, these measures have also been criticised in this framework. Perhaps the most common theme in recent critiques is the reluctance of the leadership to decree large-scale non-government property rights.1 The sluggishness at the implementation stage has been associated with both anti-reformist political factions in the party and government, as well as the economic inconsistency of pressing the development of wholesale trade without allowing for significant market pricing.2 By appealing to the same four themes as in the past, these studies illuminate important general underlying problems in the reform process in the USSR since World War II. The thesis of this paper is that, despite the unquestionable importance of these four traditional categories of problems, they are insufficient to explain difficulties in Soviet economic reform. This insufficiency is particularly marked in the current period, as the primary obstacle to successful economic reform in the USSR now

The Market and Efficient Resource Allocation

Graham Dawson, a very experienced teacher of economics at Bedford High School, gives the second in the series of Model Answers for ‘A’ Level economics.

GENERATING MARKETING STRATEGY PRIORITIES BASED ON RELATIVE COMPETITIVE POSITION

The marketing manager has little or no guidance in formulating competitive strategies. This article presents a marketing strategy planning tool based on customers' perceptions of the positions of competing brands across various product attributes. The method, called “Simultaneous Importance‐Performance Analysis,” advocates focusing attention on relevant competitors' positions and attacking or defending market territory selectively. An example of its application is provided to illustrate its usefulness. The tool provides a framework for prioritizing alternative marketing strategies and is helpful in deciding on the allocation of limited marketing resources to design an efficient short‐range marketing plan. We will first discuss the nature of competitive advantage strategy and look at the marketing manager's dilemma on how to select tactics to develop a competitive advantage. We will then describe and illustrate “simultaneous importance — performance analysis,” based on importance‐performance analysis. Finally, we will suggest how this technique might be integrated into a company's strategic planning system.

The effectiveness of structural adjustment lending: Initial evidence from Malawi

The World Bank's new programs of structural adjustment lending are likely to prove most effective with those governments which demonstrate shared ideals in their approach to economic adjustment and policy reform. Malawi has long been regarded as a country placing great reliance on the market in resource allocation, showing restraint in public sector expansion and retaining a strong export orientation. The balance-of-payments difficulties and the deterioration in economic circumstances which began in 1980 did not arise solely from “external shocks,” but the structural adjustment lending programs introduced in 1981 as a means of easing the painful reform process found root in a fertile and responsive policy environment. This paper chronicles the first two SALs to Malawi, reviewing in particular the specific policy reforms advocated and required by the Bank, the extent of their implementation and the provisional effects on the Malawi economy.

POSITIVE FREEDOM, MARKETS AND THE WELFARE STATE

The comparative merits of market and certain distinguished non-market resource allocation mechanisms have continually been at the centre of debate in economics and political philosophy. Doubtless it will remain there. For here one faces the grandest of human concerns, embracing as it does issues bearing on liberty and welfare, the aspirations of people, their potential and re alized capabilities and the fulfillment of their needs. It enables us to see individuals in a social context, to ask about the possible features of a civil society, the obligations that people may have to themselves, to one another and to agencies. Then again, we are able to enquire into the obli gations that agencies have to people and to one another, the extent to which responsibility needs to be delegated among offices and persons, the role that dispersed information may play in an swers to these and so on. The debate is central to any discussion of the kind of society we ought to aspire to be members of.

The Power and Politics of Marketing Budgeting

The power of the marketing department and its political control of the budgeting process relative to the power and political behaviour of other departments can be used to predict budget size. Previous literature on marketing budgeting has focused on technique rather than the task environment. Here an attempt has been made to place marketing resource allocation in its context of the “corporate environment for marketing management”. A model of the power and politics of marketing budgeting is given, and a small exploratory empirical study of medium‐sized UK manufacturing firms validates certain elements of the model. The results point to three areas for concern: the management of marketing in organisations; the construction of curricula for marketing education; and the lines of investigation to be pursued next.

Towards hierarchical linking of marketing resource allocation to market areas and product groups

In this paper a marketing resource allocation model is developed that is intended as a decision support tool for management at a country level in a multinational multiproduct firm. At the same time overall company objectives and portfolio considerations are taken into account by imposing a set of constraints on the countries. Output of the models from the different countries can help corporate management in allocating resources to countries and in evaluating the short term opportunity cost of its strategic constraints. As such, the model is seen as a first step in working towards hierarchically linked allocation models.

Customer analysis for strategy development in industrial markets

AbstractThis paper reports on concepts and techniques which have been developed for analysing customers and used as an aid to assessing the strategic position of companies in industrial markets. The emphasis on supplier/customer relationships presented here derives from the interaction approach to marketing and purchasing strategy. Many industrial markets are highly concentrated, and many companies develop in conjunction with key customers in a symbiotic relationship, where strategy evolves as proposals made by either side are either accepted or rejected. To take account of this we propose a 3‐stage framework for analysing customers which builds on and transforms techniques traditionally used for an analysis of products. The purpose of the analysis is to improve the allocation of scarce marketing and technical resources, to reappraise the company's competitive position with different customer groups and to ensure that key relationships are managed effectively.

Invention and Innovation Under Alternative Market Structures: The Case of Natural Resources

This paper examines the interactions between market structure and resource allocation over time when there is endogenous technical progress. The structures considered are a planned economy, pure monopoly, and competition with patent rights. In an efficient allocation the date of invention coincides with the date of innovation (the date at which technology is used). This is also true with a pure monopoly, but monopoly retards technical progress relative to the efficient level. Competition for rights to a new technology results in excessively rapid technical progress if the resource endowment of the economy is sufficiently large. Also, competition may lead to sleeping patents where invention strictly precedes the date of innovation.