Traditionally, marketing managers were urged to compete for what customers have in their hearts and minds by using different marketing actions such as new product introduction, promotional incentives and advertising. With an increasing pressure by the top management, they are also held responsible for the impact of these actions on revenues (top-line), profits (bottom-line) and firm value (investor response in the financial markets). Indeed, for financially oriented executives, what remains crucial is how to allocate the marketing resources and the translation of these resources into long-term benefits.

As a response to this need, the marketing academics have focused on:

• The effectiveness of marketing actions in both the short- and long-run
• How to offer value-for-money (Does your performance increase most with a £1 reduction in price or by increasing sales promotions by £1?)
• Wear-in and wear-out effects of marketing actions
• Consumers’ sensitivity do different actions such as price cuts and advertising in both the short- and long-run.
• The optimal resource allocation to increase long-run performance (What should the optimal allocation for online vs offline advertising be? What should the optimum ratio of fixed (media) vs. variable marketing (incentives) spending be?)
• The measurement of customer lifetime value
• Sales volatility due to marketing mix

Despite the increasing popularity of marketing mix modelling among marketing academics, most of the practitioners are yet to put them into practice.

Dr Gokhan Yildirim, a new member of Centre for Marketing Analytics and Forecasting (LCF), recently took part in different research teams to investigate such issues for the firms ranging from small- to big-size in different sectors: automobile, retailing, kitchen built-in appliances and textile sectors.

For example, in a recent empirical study, the team looked at the sales volatility threat at the retail level for several FMCGs. The project revealed that marketing actions are the sources not only for creating average sales, but also for producing sales volatility which is not a desired outcome due to many types of operational costs. Lower price and promotional growth rates lead to less volatility in sales growth. Marketing managers can track their own and competitors’ sales volatility to better understand their supply chain relationships, which in turn creates long-term competitive advantages.

In a different research project, the team focused on the computation of the optimal CLV achieved as a result of optimal mass and direct marketing actions. For a kitchen appliances firm, the team proposed optimal dynamic marketing budget allocation procedure that yields the optimal CLV. Marketing managers dealing with both one-to-one and mass marketing can use the model to determine the level of the price, how much money they should spend on each customer and on general advertising to maximize their CLV even if they have a high number of customers.

The team carried out another application to investigate the return on investment for ATL (advertising) and BTL (dealer) efforts for a company operating in kitchen appliances sector. The project showed that the sustained marketing investments are not necessary for the analyzed company. In other words, reducing marketing spending as a percentage of sales to boost profitability is advised. Doubling ATL spending yields a 1.65% increase in sales while doubling BTL spending increases sales by 4.35% in the long-run. We find that the company overspent on BTL and should reallocate its budget from BTL to ATL marketing spending.

The LCF is keen to further expand its collaboration with industry. If you are interested in getting more information about the above work please contact Dr Gokhan Yildirim.

Reference
Pauwels, K., Erguncu, S., & Yildirim, G. (2013). Winning hearts, minds and sales: how marketing communication enters the purchase process in emerging and mature markets. International Journal of Research in Marketing, 30(1), 57-68.