Case study - Market Spend Optimization, Cap Gemini Ernst & Young

Client Business Issue
The client sells a large range of cars into distinct market sectors in most countries in Europe. The client controls the market spend budget for the National Sales Companies in each country, and must ensure that the budget is allocated effectively. Their aim was to maximize profit after marketing spend as a total across Europe. It wanted a model which would use its understanding of economic theory and practical constraints such as the size of production runs to suggest alternative budget allocations which would deliver more profit than the base plans submitted by the National Sales Companies.

Solution
Cap Gemini developed an optimization model based on agreed economic theory, which incorporates the way the client structures its data and which allows the client to set constraints easily. The model optimized over three levels - country, model and market segment. Input data and constraints such as minimum spend levels, limited changes to sales volumes and production constraints were handled by a user-friendly front-end. The front-end system also ran the optimization and stored all results to facilitate what-if analyses. Output data was written to a spreadsheet system to help in the analysis of the results and to display graphs of the key relationships as shown.

Approach
The approach used was to develop an understanding of the client's data and agree an economic model to underpin the optimization. The optimization model was then created in Xpress-MP. The user interface was designed in Microsoft Access with input and output of data using Microsoft Excel.

Benefits

• The client has gained understanding of the importance of price elasticities
• The client can now quickly run a series of what-if optimizations which reveal the knock-on effects of proposed actions
• The model provides a rigorous basis for proposing alternative market spend allocations which deliver higher expected profit than the base case.

The graph below shows Total Variable Profit as a function of Total Variable Market Spend, for a given market line (country/model/market segment). In this case there is clearly an optimal market spend (before applying other constraints).

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