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Dynamic Promotional Resource Allocation for Segment Specific and Spectrum Effect of Promotion for a Product Line Incorporating Repeat Purchase Behavior

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Author(s): Prakash Chandra Jha | Prerna Manik | Anshu Gupta

Journal: American Journal of Operations Research
ISSN 2160-8830

Volume: 03;
Issue: 03;
Start page: 350;
Date: 2013;
Original page

Keywords: Market Segmentation | Differentiated Market Promotion | Mass Market Promotion | Spectrum Effect | Promotional Effort Allocation | Repeat Purchase | Product Line | Non Linear Programming Problem | Differential Evolution

ABSTRACT
Promotion is an essential element in the marketing mix. It is used by businesses to inform, influence and persuade customers to adopt the products and services they offer. Without promotion, business would be stagnant and lack substantial growth because the brands would have low visibility in the market. Moreover, today’s vast and assorted markets comprise of customers with different needs and varied behavior. So it is rarely possible for companies to satisfy all customers by treating them alike. Thus there arises a need to divide the market into segments having customers with similar traits/characteristics. After identifying appropriate market segments, firms can design differentiated promotional campaigns for each segment. At the same time there can be a mass market promotional campaign that reaches different segments with a fixed spectrum. Also since promotional effort resources are limited, one must use them judiciously. In this paper, we formulate mathematical programming problem under repeat purchase scenario, which optimally allocates mass promotional effort resources and differentiated promotional effort resources across the segments dynamically in order to maximize the overall sales obtained from multiple products of a product line under budgetary and minimum sales aspiration level constraint on each product under consideration in each segment. The planning horizon is divided into multi periods, the adoption pattern of each product in each segment is observed in every subinterval and accordingly promotional effort allocations are determined for the next period till we reach the end of planning period. The optimization model has been further extended to incorporate minimum aspiration level constraints on total sales for each product under consideration from all the segments taken together. The non linear programming problem so formulated is solved using differential evolution approach. A numerical example has been discussed to illustrate applicability of the model.

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