FMCG portfolio budget allocation to price promotions using Modern Portfolio Theory (MPT)

Marketing managers seek to maximise the return of their marketing portfolio investment and, as a result, create shareholder value. There has been some application of MPT in marketing as a means to optimize the portfolio. Previous applications have had limitations, namely that marketing lacks a fixed index of comparison and the return of an asset varies with differing levels of marketing spend support. This study focuses on use of MPT in price promotions, which have become a key component in the marketing mix of stimulating sales, particularly in the FMCG environment. The hypothesis of this paper is that previous limitations of MPT in marketing can be overcome through use of brackets of price promotion. This is proven through study of FMCG data and it is shown that price promotions can be optimized to improve return without increased risk.