Coordinated dynamic control of marketing and production

We study the dynamic profit maximization problem for a firm exercising control on both marketing and production. The firm's marketing effort impacts the current-period demand, which in turn affects future demand in a dissipating fashion. Under linear-cost and zero-leadtime assumptions, we show that the firm should follow base-point rules for both marketing and production, whereas trends of the base points reflect a certain complementarity between marketing and production. We obtain comparable results when marketing costs are convex. Our computational study identifies conditions under which simple fixed-marketing-effort and fixed-marketing-target heuristics would perform well.