Promotional Allocation Problem for a Multi Generational Product in Segmented Market

Abstract

Multiple generations of many durable products serves the markets simultaneously. As technology is growing at a very fast rate, new technology creates the need of higher technology products, and makes firms to introduce new products even when a product is doing well in the market in the order of competition, survival etc. Existence of several generations altogether in the market directly or indirectly affects the sales of the each other by the way of the effects of substitution, upgradation, leapfrogging etc. Products either new or old need to be promoted in the market - initially to create the awareness and later on the grounds of market share and capture. Promotional effort is an important component of marketing mix that determines the success of a product, so must be spent judiciously. In the marketing literature many promotional allocation problems have been discussed under various concerns, but most of them either consider a single product or multiple products each of which is different from other. The effect of existence of several generations of the same product has been ignored while making these allocations. In this paper we formulate a promotional allocation problem for durable technology product using a diffusion substitution model to capture the sales of multiple generations of the product for a segmented market. The model captures the sales of the products along with their substitution effect. The optimization model formulated is a non-linear programming problem. It allocates promotional efforts to the different generations of a product in a planning horizon maximizing sales under budgetary constraint. The model application is illustrated through a numerical example.