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Download FMCG Portfolio Budget Allocation to Price Promotions Using Modern Portfolio Theory (MPT):
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FMCG portfolio budget allocation to price promotions using Modern Portfolio Theory (MPT) Juan Franco-Laverde1, Andrew Littlewood2, Craig Ellis3, Dr. Ingrid Schraner4 and Dr. MariaEstela Varua5 ABSTRACT Purpose: The purpose of this paper is to show that financial techniques, namely Modern Portfolio Theory (MPT), can be applied to marketing scenarios to improve marketing return on investment. This paper uses MPT to optimise price promotion activity. Design/Methodology/Approach: Using the scanner panel data of a large FMCG company specialising in dietary supplements the research creates price promotion brackets and treats them in the same way as a portfolio of shares. Findings: Using MPT this research identifies improved returns from price promotion activity in product lines and across all product lines collectively, whilst not affecting the level of risk involved. Originality/Value: The application of MPT in marketing is not new, it has previously been applied to portfolios of brands, markets, consumer segments and campaigns to allocate marketing budgets, however all applications have struggled with the lack of an index or fixed return (both common in financial markets). This research breaks new ground with application in the area of price promotion and delivers a robust application of MPT in marketing, overcoming limitations of lack of index and fixed return. 1 Juan Franco-Laverde is a PhD student and University of Western Sydney and the Director of marketing analytics company MediaCom Business Science 2 Andrew Littlewood is the Chief Data and ROI Officer of marketing analytics company MediaCom Business Science 3 Craig Ellis is an Associate Professor at University of Western Sydney 4 Dr. Ingrid Schraner is a Senior Lecturer in Economics and Finance, Coordinator Community Engagement School of Economics and Finance at University of Western Sydney 5 Dr. Maria-Estela Varua is a Lecturer in Economics and Finance at University of Western Sydney 1|Page
