Citation:
Ryals, Lynette; Dias, Sam; Berger, Maya. Optimising marketing spend: return maximization and risk minimization in the marketing portfolio. Journal of Marketing Management Volume 23, Issue 9, pp991-1012
Abstract:
In a world of limited resources, marketing managers tasked to deliver
shareholder value face decisions about how to maximize the returns on their
marketing portfolio. Risk is less often considered. In finance the picture is
very different; financial portfolio management is concerned with both risk and
returns. The central innovation in this paper is the application of modern
portfolio theory (MPT) to the management of marketing portfolios in food
retailing and in drinks manufacturing. The authors develop a model that
calculates an efficient frontier of marketing portfolios that maximize overall
return within certain risk constraints, first for a simple two-segment marketing
world and then for a more realistic multi-segment portfolio. However, marketing
portfolios differ from financial ones in the sense that the allocation of
marketing spend affects the returns from the portfolio. Therefore, a second
innovation, an extension of MPT to take account of marketing spend allocation
decisions, has been developed. Using this model, marketers can determine the
risk and the returns of marketing investments, helping them select an optimal
portfolio. This would go some way to ensuring that marketing contributes to
shareholder value creation, currently one of its major challenges.