Marketing Mix Optimization with Practical Constraints

TL;DR

This paper tackles a practical marketing mix optimization problem with constraints on minimum activity spend changes and the number of activities altered, formulating it as a mixed integer nonlinear program and proposing reformulations for efficient solutions.

Contribution

It introduces a reformulation of the constrained MMO problem as a MINLP and demonstrates computational improvements for solving realistic industrial-scale problems.

Findings

Significant computational improvements with reformulation.

Effective handling of practical constraints in MMO.

Potential for application in retail and CPG industries.

Abstract

In this paper, we address a variant of the marketing mix optimization (MMO) problem which is commonly encountered in many industries, e.g., retail and consumer packaged goods (CPG) industries. This problem requires the spend for each marketing activity, if adjusted, be changed by a non-negligible degree (minimum change) and also the total number of activities with spend change be limited (maximum number of changes). With these two additional practical requirements, the original resource allocation problem is formulated as a mixed integer nonlinear program (MINLP). Given the size of a realistic problem in the industrial setting, the state-of-the-art integer programming solvers may not be able to solve the problem to optimality in a straightforward way within a reasonable amount of time. Hence, we propose a systematic reformulation to ease the computational burden. Computational tests show significant improvements in the solution process.