Digital Marketing Application of Optimization
Goal: Use optimization to come up with an optimal Digital Advertising Plan
Scenario: A company wants to increase revenue by increasing its brand awareness by creating an advertising plan with search ads, display ads, Gmail ads, and YouTube ads. The company has one year of conversion data available with it.
Conversions à customer actions that the company consider valuable such as purchases, sign-ups, calls initiated directly from an ad, calls to a phone number on the ad, or downloads.
Constraints set by company:
- Total amount spent in digital ads should not exceed $5,000.
- A minimum of $1,000 should be spent in display ads.
- A minimum of $200 should be spent in YouTube ads.
- At least 60% of the budget should be spent in display and search ads.
- What is spent in YouTube ads should not be more than what's spent in Gmail ads.
- Gmail ads should not be more than 10% of the budget.
- The plan should generate at least 1,500 conversations.
The second constraint has a shadow price of minus $1 which indicates that net revenue will decrease by $1 for each additional dollar that we insist on spending in display ads.
Conversely, for the constraint which limits spend on Gmail ads, there is a $4 shadow price which means that net revenue would increase by $4 for every additional dollar that we allow the model to allocate to Gmail ads.