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Second Example: Market Allocations

MegaMarketing is planning a concentrated one week advertising campaign for their new CutsEverything SuperKnife. The ads have been designed and produced and now they wish to determine how much money to spend in each advertising outlet. In reality, they have hundreds of possible outlets to choose from. We will illustrate their problem with two outlets: Prime-time TV, and newsmagazines.

The problem of optimally spending advertising dollars can be formulated in many ways. For instance, given a fixed budget, the goal might be to maximize the number of target customers reached (a target customer is a customer with a reasonable chance of purchasing the product).

An alternative approach, which we adopt here, is to define targets for reaching each market segment and to minimize the money spent to reach those targets. For this product, the target segments are Teenage Boys, Affluent Women (ages 40-49), and Retired Men. Each minute of primetime TV and page of newsmagazine advertisement reaches the following number of people (in millions):


Again, MegaMarketing is interested in straightforward answers like how many units of each outlet to purchase to meet the segment goals. They are also interested in such questions as ``How much will it cost to reach an extra million retired men?'', ``One radio spot reaches 1 million boys, 1 million women, and 1 million men: how much are we willing to pay for such a spot?'', and similar questions.

Michael A. Trick
Mon Aug 24 14:40:57 EDT 1998