Title: Optimal Advertising Budget Allocation in Luxury Fashion Markets with Social Influences: A Mean-Variance Analysis
Speaker: Tsan-Ming Choi, Professor, Hong Kong Polytechnic University
Time: 10:00 am, July 5, 2018
Location: Room 418, Main Building
Optimizing advertising budget allocation in the luxury fashion industry is an important problem. In this talk, motivated by real world practices, we consider a luxury fashion firm serving a conspicuous market consisting of two groups of consumers who influence one another. We investigate the optimal customer portfolios and budget allocation problem using the mean-variance (MV) framework. Under the basic model in which all budget must be spent, we identify different scenarios and explore the MV efficient frontier for each scenario. Interestingly, different from the classic investment portfolio problem, we reveal that: (i) not all budget allocations between the two groups of consumers are MV efficient, which means that the efficient frontier is not continuous; (ii) in the presence of social influence, diversification of customer portfolio does not always lead to a smaller variance, which counter-intuitively means that focusing on a single consumer group can reduce risk. We also prove that to maximize expected profit, the optimal strategy is to allocate all advertising budget to one group of consumers only (i.e. a polarized strategy). We illustrate analytically the importance of identifying the right scenario for budget planning. Finally, we examine the budget saving strategy in the extended model and uncover that the respective range of efficient solutions is smaller than the one under the all budget spending strategy. This shows that the budget saving strategy offers less flexibility for MV efficient budget allocation than the all budget spending strategy.
Tsan-Ming Choi (Jason) is currently Professor of Fashion Business at The Hong Kong Polytechnic University (PolyU). Over the past decade, he has actively participated in a variety of research projects on supply chain management and applied optimization for fashion business operations. He has authored/edited sixteen research handbooks, guest-edited special issues for many well-established journals, and published over 160 papers in Web of Science listed citation journals, including journals like Production and Operations Management, Decision Sciences, IEEE Transactions on Automatic Control, IEEE Transactions on Cybernetics, IEEE Transactions on Industrial Informatics, IEEE Transactions on Systems, Man and Cybernetics - Systems, Naval Research Logistics, etc. He is the incoming Co-Editor-in-Chief of Transportation Research – Part E (starting from Jan 2019). He is now serving as a senior editor of Production and Operations Management, and Decision Support Systems, an associate editor of IEEE Transactions on Systems, Man, and Cybernetics - Systems, Information Sciences, and Transportation Research - Part E, and an editorial board member of INFORMS Service Science, and International Journal of Production Research, etc. He is the founding editor of Springer's Book Series in Fashion Business. In the past, he was an executive committee member/officer of professional organizations such as IEEE-SMC (HK) and POMS (HK). He received the PolyU’s President’s Award of Outstanding Performance in 2008, the Best Associate Editor Award of IEEE Systems, Man, and Cybernetics Society in two consecutive years (2013 and 2014), and the Distinguished Alumni Award of Faculty of Engineering, The Chinese University of Hong Kong in 2017.