Multi-Product Resource Allocation

The most common resource allocation methods are:

• Percentage of sales
• Executive judgement
• All-you-can-afford
• Match competitors
• Last year based

Another method is called decision calculus. Managers are asked four questions:

What would sales be with:

1. no sales force
2. half the current effort
3. 50% greater effort
4. a saturation level of effort.

From these answers, one can determine the parameters of the S-curve response function and use linear programming techniques to determine resource allocations.

Decision algorithms that result in extreme solutions, such as allocating most of the sales force to one product while neglecting another product often do not yield practical solutions.

For mature products, sales increase very little as a function of advertising expenditures. For newer products however, there is a very positive correlation.

Portfolio models may be used to allocate resources among major product lines or business units. The BCG growth-share matrix is one such model.