Prof. Harald van Heerde, Ph.D. (Massey University):
"How to spend marketing budgets over the business cycle? The case of international tourism marketing"
Monday, July 14, 10:00am – 11:30pm (WiSo Modulbau, Seminar Room 2)
A key conundrum facing organizations is how to spend marketing budgets over the business cycle. While some commentators advocate countercyclical spending (spending more during contractions), others argue for procyclical spending (spending more during expansions). Recent work has posited that if the effectiveness of marketing spending moves procyclically, budgets should also be spent procylically, and vice versa. However, as this paper shows, the problem with this recommendation is that the spending choice should not only be determined by the pro- versus countercyclical nature of marketing effectiveness, but also by the pro- versus countercyclical nature of demand itself. The spending problem is compounded when demand is not just driven by one country’s business cycle, but by the (not necessarily synchronized) business cycles of multiple countries, such as is the case for international tourists originating from different countries. This paper offers insights in the best way to spend marketing budgets across both countries and business cycles. To do so, we develop a Transfer Function Dynamic Hierarchical Linear Model to accommodate cross-sectional and longitudinal parameter variation in marketing effectiveness. In an application to New Zealand tourism marketing, we find that a reallocation of the government’s marketing budget could yield an increase in tourist revenues that is close to one hundred million NZ dollars.