SSRN-id1525881 - Allocating advertising expenses using...

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1 Allocating advertising expenses using Linear Programming and MS –Excel Dr Karagiannis Stefanos Associate Professor ΑΤΕΙ of Crete – Scientific Associate Technical University of Crete, Es- tavromenos, 71500, Heraklion, [email protected] Dr Candidate Tsoukatos Evangelos Scientific Associate ΑΤΕΙ of Crete – Dr Candidate Lancaster University Management School (LUMS), Estavromenos, 71500, Heraklion , [email protected] Dr. Papailias Theodoros Professor ΑΤΕΙ of Piraeus, School of Management and Economy, Piraeus, [email protected] Summary One of the most important functions of enterprises is advertising as a means of systematically ap- proaching specific market segments and informing prospective customers for their products, services or even their existence. The purpose of every advertising campaign is to achieve the greatest possible im- pact, to the market segments addressed, within the frames of a given budget and under a set of qualita- tive or quantitative constraints. The cost to benefit relationship of such a campaign is an important issue for every enterprise and in particular for small or medium ones. Linear programming techniques can contribute towards the effective allocation of advertising expenses and the use of MS Excel Solver fa- cilitates the resolution of the resulting mathematical models. Keywords: Advertising expenses, Linear Programming, MS Excel Solver 1 The use of Linear Programming in allocating advertising expenses The issue of developing and using linear models for the optimal allocation of advertising ex- penses among available advertising vehicles has been extensively debated [Zangwill (1965)], [Brown and Warshaw (1965)], [Bass and Lonsdale (1966)], [Stasch (1965) and (1967)], [Ke- own and Duncan (1974)], [Caine and Robson (1993)]. On the basis of the relevant literature and given that this can be easily formulated as a typical resource allocation problem, one would expect that Linear Programming (LP) techniques would have been widely used in this respect. However, although these techniques are taught in every business or management school worldwide, they have been, so far, hardly used in real world conditions by manage- ment. This is because the LP formulation of, even quite simple, business situations involves an exceptionally big number of variables and constraints and, hence, expensive dedicated software requiring specialised personnel needed to be used for handling the resulting models. Thus LP, for a number of years, has been used only by very big business, government agen- cies and organizations or in the frames of academic research [Caine and Parker (1996)]. The extensive use of personal computers, the dramatic reduction of their cost and the tremen- dous increase of their computing ability have influenced the management culture worldwide.
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