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Allocation of marketing budgets to maximize customer equity

Author

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  • Hamidreza Koosha

    (Ferdowsi University of Mashhad)

  • Amir Albadvi

    (Tarbiat Modares University)

Abstract

Relationship marketing considers customers as the main asset of organizations and the source of their profitability. Allocation of marketing budgets to these valuable assets is critical; because the way companies allocate their marketing budgets to customers affects their profitability. The purpose of this research is to provide a new approach to allocate marketing budgets to customer segments in a long-term view and a dynamic process. The contribution of the model is as follows: (1) unlike the previous modeling efforts where a predefined budget level was assigned to acquisition and retention, the suggested model sets and allocates marketing budgets simultaneously; (2) the model is multi-period which means the strategies for setting and allocation of marketing budgets may be different in each period. The proposed approach aims at maximizing customer equity in a long-term planning horizon with several periods. Decision variables determine how the budgets should be assigned to customer acquisition and retention in each period. Formulation of the model is followed by a numerical illustration. Since the model is nonlinear and non-convex, none of exact mathematical programming approaches may solve it. Therefore, genetic algorithm and simulated annealing approaches were employed. The results showed the effectiveness of the model compared with other extant models.

Suggested Citation

  • Hamidreza Koosha & Amir Albadvi, 2020. "Allocation of marketing budgets to maximize customer equity," Operational Research, Springer, vol. 20(2), pages 561-583, June.
    • Handle: RePEc:spr:operea:v:20:y:2020:i:2:d:10.1007_s12351-017-0356-z
    DOI: 10.1007/s12351-017-0356-z
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    References listed on IDEAS

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