OPTIMAL SEASONAL ALLOCATION OF GENERIC ADVERTISING EXPENDITURES WITH PRODUCT SUBSTITUTION: SALMON IN FRANCE

Static decision rules are derived to indicate the optimal seasonal allocation of a fixed promotion budget when substitution effects are important and prices are determined under competitive conditions. Optimal allocation decisions are governed by price elasticities of supply and demand, advertising elasticities, and consumer expenditure shares, all of which can vary seasonally. Applying the rules to Norwegian salmon promotion in France for the period 1996–98, study results suggest that the actual quarterly allocation of 4, 52, 17, 27 was inefficient in that the optimal allocation of 23, 26, 20, 31 would have enhanced producer profits by 9.8 million kroner, equal to 27% of the total promotion outlay. Ignoring product substitution distorts the allocation rule, in that optimal expenditures in the second quarter are overstated by 36%, with corresponding understatements in the remaining quarters. Overall, an even expenditure pattern is deemed more profitable than pulsing.