Predicting Resource Usage for Capital Efficient Marketing
D. R. Mani (Massachusetts Institute of Technology, USA and Harvard University, USA), Andrew L. Betz (Progressive Insurance, USA) and James H. Drew (Verizon Laboratories, USA)
Copyright: © 2005
A structural conflict exists in businesses that sell services whose production costs are discontinuous and whose consumption is continuous but variable. A classic example is in businesses where capital-intensive infrastructure is necessary for provisioning service, but the capacity resulting from capital outlay is not always fully and efficiently utilized. Marketing departments focus on initiatives that increase infrastructure usage to improve both customer retention and ongoing revenue. Engineering and operations departments focus on the cost of service provision to improve the capital efficiency of revenue dollars received. Consequently, a marketing initiative to increase infrastructure usage may be resisted by engineering, if its introduction would require great capital expense to accommodate that increased usage. This conflict is exacerbated when a usage-enhancing initiative tends to increase usage variability so that capital expenditures are triggered with only small increases in total usage.