Keyword portfolio optimization in paid search advertising

This paper uses investment portfolio theory to determine budget allocation in paid online search advertising. The approach focuses on risk-adjusted performance and favors diversified portfolios of unrelated or negatively correlated keywords. An empirical investigation employs averages, variances and co-variances for keyword popularities, which are estimated using growth rates for 15 major sectors taken from the Google Trends database. In line with portfolio theory, the results show that the average keyword popularity growth is strongly related to the standard deviation of growth for each keyword in the sample (R2 = 74%). Hypothesis testing of differences in Sharpe ratios documents a significantly better performance of the proposed approach compared to that of other strategies currently used by practitioners

Optimizing a Menu of Multi-format Subscription Plans for Advertising Supported Media Platforms: A Model and Application in The Daily Newspaper Industry

Distribution of content by media companies has greatly transformed in the past decade. Content, which was once distributed through e.g., television, radio and print formats, is now available through contemporary digital formats with many possible versions, such as smartphone and tablet apps with and without ads etc. Consequently, many media firms facing markets comprised of heterogeneous consumers with varying content consumption preferences are offering 'menus' of multi format-version subscription bundles for their consumers to choose from. So far, however, there is little systematic model-based guidance on configuring and pricing menu options available to such content marketers. Moreover, most media firms are 'audience-building platforms' that serve at least two distinct customer groups (content consumers and advertisers) with inter-related demands. Therefore, constructing a menu of content subscription bundles that maximizes total profit from both consumers and advertisers becomes an even more complex problem, not yet addressed in the marketing literature. Therefore, this article proposes a theory-driven implementable model-based approach that can aid media platforms in optimally designing their subscription menus. The proposed framework is demonstrated for a U.S. newspaper and profit maximizing menus for various strategies are determined

Structuring a Multiproduct Sales Quota-Bonus Plan for a Heterogeneous Sales Force: A Practical Model-Based Approach

This paper presents an agency theoretic model-based approach that assists sales managers in determining the profit-maximizing structure of a common multiproduct sales quota-bonus plan for a geographically specialized heterogeneous sales force operating in a repetitive buying environment. This approach involves estimating each salesperson's utility function for income and effort and using these models to predict individual sales achievements and the associated aggregate profit for the firm under a specified plan. The utility function estimation is based on the salesperson's own preference rank-ordering of alternative sales quota-bonus plans. Once these functions have been estimated, they are incorporated in a mathematical programming model that the sales manager can use to determine the best plan. The authors demonstrate the approach in the context of a case involving the design of a two-product sales quota-bonus plan for a set of salespeople at a pharmaceutical products firm.sales force research, sales quota-bonus plans, principal-agent model, heterogeneous sales-people, salesperson utility function, conjoint analysis

Optimal Resource Allocation with Time-varying Marketing Effectiveness, Margins and Costs

The importance of optimal marketing communications mix decisions is well-recognized by both marketing scholars and practitioners. A significant volume of work has addressed the problem of dynamic marketing mix optimization assuming constant effectiveness of marketing instruments. However, the effectiveness of marketing communications varies over time for a variety of reasons. Moreover, due to factors such as inflation or deflation in media prices and/or raw material inputs, there can be differential changes in the costs of communications and/or margins on the good (or service) sold over time. The academic literature offers little normative direction on how time-varying marketing effectiveness and costs drive optimal marketing-mix levels and their relative allocation. The authors shed light on these issues by solving a monopoly firm's finite horizon dynamic marketing communications mix optimization problem involving two marketing instruments with time-varying parameters, i.e., the marketing effectiveness parameters, media costs, and product margin are all allowed to vary over time. First, they find that the structure of the solutions is similar to that of the classic Nerlove–Arrow model, for a completely general nature of time-varying effectiveness. Second, their model can be used by managers to exactly determine whether and when to switch their marketing-mix emphasis (defined by the marketing element receiving the dominant portion of the budget) over a finite planning horizon. In sum, the authors expand knowledge on optimal allocation of marketing resources with time-varying effectiveness. They also extend their solution to incorporate multiple (more than two) marketing instruments

The Bricks That Build the Clicks: Newsroom Investments and Newspaper Online Performance

As the world embraces the Internet for media consumption, the concept of a hybrid newspaper—a printed newspaper with a companion Web site—is becoming more prevalent. Many hope that online advertising revenue (OAR) will help newspapers make up for losses in print (offline) revenue. However, there is little research that has empirically investigated whether and how investment in the “bricks” (i.e., the newsroom staff and resources that produce news content) will help to build “clicks” (i.e., more online visitors and, subsequently, OAR). This article examines the issue via an econometric analysis of 12 years of longitudinal data from a hybrid newspaper. The results show that the basic success of the clicks model depends on the investment in the bricks of the newspaper (i.e., its newsroom). Specifically, although news gathering is a very expensive part of the news business, it is also a creator of value and directly brings in OAR in addition to print advertising revenue. Therefore, as newspapers seek to capture more OAR, they may need to increase, rather than decrease, investment levels in the newsroom