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Dynamic marketing decisions in the presence of perishable demand

University of British Columbia

This thesis seeks to advance our understanding of how quantitative models can be developed and applied to marketing in complex dynamic environments characterized by demand perishability. Specifically, it involves three essays on the dynamic shelf-space management of movies. The problem is particularly complex for exhibitors - the retailers in the motion picture supply chain - given the short life cycles of movies, their perishable and uncertain demand, and complicated contracts. Our objective is to understand, formalize, and develop optimal normative policies for such decision making situations. Essay 1 considers this problem from a theoretical standpoint by addressing the stochastic aspects of movie replacement, which is analogous to equipment replacement in maintenance theory. We formulate this problem as a Markov decision process model. A scenario analysis reveals that the exhibitor is better off when shelf-space becomes scarcer for the distributors. A smart exhibitor associates a cost with contract parameters and bears it if it makes economic sense. The results underscore the importance of precise information for making smart replacement decisions. The optimal policy under special conditions resembles a control limit policy, which is easy to implement and compute. Essay 2 applies the theoretical concepts developed in Essay 1 to a special case of the movie replacement problem. The output of this essay is SilverScreener, which is a decision support model for movie exhibitors. The model helps the exhibitors both select (which) and schedule (when, how long) the movies. The model is readily implementable and appears to lead to considerable improvement in profitability in different comparative cases. The general nature of optimal policy emerges as: choose fewer "right" movies and run them longer. The robustness of the results is shown through sensitivity analyses. Essay 3 proposes a two-tier application of the SilverScreener model to show its effectiveness as a managerial aid. The master plan helps the manager in bidding and planning for movies before a season. The rolling horizon approach is useful for weekly replacement decisions during the season. Our results show that SilverScreener can improve the manager's profitability and promises to be an effective scheduling and planning tool.

Thesis/Dissertation

application/pdf

2009-06-25

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http://hdl.handle.net/2429/9609

Business Administration

University of British Columbia

UBCV

DSpace