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Hollywood is pumping out movie sequels like there’s no tomorrow, from the beloved Paddington
to Marvel Comics’ Avengers
, and the pace is far from slowing. How can studios allocate budgets to increase profits, and is this relevant to other categories?
Sequential distribution is critical to a movie studio’s performance, as well as for many other types of products. However, relatively little is known about ad-budget allocation rules for sequentially released products.
Researchers Jooseop Lim and Tieshan Li explored this topic, focusing on movies, because movies represent a good example of sequentially released products. Their work revealed:
When a company’s performance relies on revenues from sequentially released products, the allocation of an advertising budget across product life stages or product formats over time is critical. “The direct effect of advertising, as well as the carryover effect from the previous stage release, needs to be incorporated into the ad-budget allocation decision for sequentially released products.”
- Companies that market sequentially released products should include genre, wearout, and carryover effects in their considerations for setting ad budgets.
- Movie studios, when planning for the release of films through the theatrical box office as well as DVDs, should allocate their ad budgets strategically, recognizing different patterns based on the type of movie. A simulation study indicated that predicted revenues from the suggested optimal allocation likely would yield higher revenues for 74 percent of the titles studied.
Jooseop Lim is an associate professor of marketing at the John Molson School of Business, Concordia University. His research interests include advertising and research and development effects on financial measures, dynamic price-promotion effects, and demand forecasting in movie and game industries. He also is interested in the application of time series, hidden Markov, and finite mixture models. His research can be found in the Journal of Marketing, Journal of the Academy of Marketing Science, and International Journal of Research in Marketing, among other journals.
Tieshan Li is an associate professor of marketing at John Molson School of Business, Concordia University. His research interests focus on retailing, channel advertising, and the motion picture industry. His work has been published in Marketing Science and Marketing Letters, among other publications.