Profiting from uncertainty

Kalyan Raman, Hubert Gatignon

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

We show that market response uncertainty can be judiciously harnessed in determining the optimal advertising budget and spending pattern to improve the expected profitability of a firm. Using stochastic optimal control, we derive the optimal feedback advertising policy to accomplish this objective, and establish that the optimal advertising policy increases profitability at a rate directly proportional to the error variance.

Original languageEnglish (US)
Title of host publicationQuantitative Marketing and Marketing Management
Subtitle of host publicationMarketing Models and Methods in Theory and Practice
PublisherGabler Verlag
Pages501-515
Number of pages15
Volume9783834937223
ISBN (Electronic)9783834937223
ISBN (Print)3834930601, 9783834930606
DOIs
StatePublished - Jul 1 2012

Keywords

  • Advertising Budget Allocation
  • Sales Response to Advertising
  • Uncertainty

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

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