Coordinated dynamic control of marketing and production

We study the dynamic profit maximization problem for a firm exercising control on both marketing and production. The firs marketing effort impacts the current‐period demand, which in turn affects future demand in a dissipating fashion. Under linear‐cost and zero‐leadtime assumptions, we show that the firm should follow base‐point rules for both marketing and production, whereas trends of the base points reflect a certain complementarity between marketing and production. We obtain comparable results when marketing costs are convex. Our computational study identifies conditions under which simple fixed‐marketing‐effort and fixed‐marketing‐target heuristics would perform well. © 2009 Wiley Periodicals, Inc. Naval Research Logistics 2009