Efficiency, effectiveness and productivity of marketing in services

Efficiency, effectiveness and productivity of marketing in services

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Article ID: iaor2007282
Country: Netherlands
Volume: 170
Issue: 1
Start Page Number: 265
End Page Number: 276
Publication Date: Apr 2006
Journal: European Journal of Operational Research
Authors: , ,
Keywords: statistics: data envelopment analysis, measurement
Abstract:

How can a service firm right-size marketing expenses and yet strive to maximize revenue? This paper represents the first attempt to model these efficiency and effectiveness issues using a 49-unit Asia–Pacific hotel chain as illustration. We employ a triangular DEA model with total expenses (controlling for number of rooms) as the raw input, marketing expenses as intermediate output/input and revenues from room rentals and F&B as final outputs. We infer that efficiency tails off when more than 12% of the budget is expended on marketing activities. In terms of effectiveness, we find that all the units rated as relatively inefficient can accrue increasing returns to scale in revenues from marketing activities. By contrast, in the productivity stage linking the raw inputs to the revenues, we observe mostly decreasing returns to scale. Our results highlight the crucial role of marketing in service organizations.

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