Efficiency, effectiveness and productivity of marketing in services

How can a service firm right-size marketing expenses and yet strive to maximize revenue? This paper represents the first attempt to model these efficiency and effectiveness issues using a 49-unit Asia–Pacific hotel chain as illustration. We employ a triangular DEA model with total expenses (controll...

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Bibliographic Details
Published inEuropean journal of operational research Vol. 170; no. 1; pp. 265 - 276
Main Authors Keh, Hean Tat, Chu, Singfat, Xu, Jiye
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.04.2006
Elsevier
Elsevier Sequoia S.A
SeriesEuropean Journal of Operational Research
Subjects
Data envelopment analysis
Effectiveness
Efficiency
Expenditures
Hotels & motels
Marketing
Mathematical models
Operations research
Productivity
Revenue
Services
Studies
Asia-Pacific region
Productivity
Services
Effectiveness
Efficiency
Marketing
Data envelopment analysis
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Summary:How can a service firm right-size marketing expenses and yet strive to maximize revenue? This paper represents the first attempt to model these efficiency and effectiveness issues using a 49-unit Asia–Pacific hotel chain as illustration. We employ a triangular DEA model with total expenses (controlling for number of rooms) as the raw input, marketing expenses as intermediate output/input and revenues from room rentals and F&B as final outputs. We infer that efficiency tails off when more than 12% of the budget is expended on marketing activities. In terms of effectiveness, we find that all the units rated as relatively inefficient can accrue increasing returns to scale in revenues from marketing activities. By contrast, in the productivity stage linking the raw inputs to the revenues, we observe mostly decreasing returns to scale. Our results highlight the crucial role of marketing in service organizations.
ISSN:0377-2217
1872-6860
DOI:10.1016/j.ejor.2004.04.050