Overview

Resource Allocation is a tool used for optimizing resource size (e.g., advertising budgets) and the allocation of resources across segments, products, channels, etc.

Hard data rarely are available to support such decisions, because resource allocation decisions influence future (unknowable) outcomes. Consequently, in the first phase, resource allocation analysis builds on managerial experience and insights to create an effort/impact response curve consensus; that is, users answer the question, “Given our experience and knowledge about the market, products, customers, and competition, what would happen if we increased [a resource such as advertising] by x%?” A response curve may then be calibrated on the basis of these “what-if” assessments to determine how the market might react to changes in the resources allocated.

Then, in the second phase, these calibrated response curves can be used to derive an optimal solution to the resource allocation problem at hand by taking into account both stated objectives and constraints (e.g., budget limitations).

Resource allocation analysis helps firms answer such questions as: 

• How much should we spend in total during a given planning horizon?
• How should that spending get allocated to each marketing mix element? How much of our budget should be spent on advertising and other forms of impersonal marketing communications? On sales promotion? On the sales force?
• How should individual budgets be allocated? To customers? To geographies? To sub-elements of the marketing communications mix? Over time?

These types of questions are closely interrelated. It is nearly impossible to address the question of how much to spend (budget) without determining how to spend the budget properly (i.e., allocated across competing uses). Thus, these questions provide the perspective used to explore each question individually.