Tuesday, December 18, 2012

Profiting from Uncertainty in Quantitative Marketing and Marketing Management, Adamantios Diamantopoulos, Wolfang Fritz, Lutz Hildebrandt (Eds.) Springer (2012) 501-516

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.