Marketing Letters 16:1, 19–35, 2005 c  2005 Springer Science + Business Media, Inc. Manufactured in the Netherlands. Allocating a Promotion Budget between Advertising and Sales Contest Prizes: An Integrated Marketing Communications Perspective PUSHKAR MURTHY pmurthy@epocrates.com Senior Manager (Analytics), Epocrates Inc, San Mateo, CA 94404 MURALI K. MANTRALA ∗ mantralam@missouri.edu Professor of Marketing, University of Missouri, 438 Cornell Hall, Columbia, MO 65211 Abstract This paper develops and analyzes a normative model for allocating a fixed, short-term promotion budget between product advertising and prizes of a rank-order sales contest for a homogeneous sales force when sales are driven by both personal selling effort and advertising. The model provides insights into how the optimal budget allocations vary with the synergy between advertising and selling effort, sales force size, salesperson risk-tolerance, perceived cost of effort, selling effectiveness and sales response uncertainty. The analysis highlights the need for and value of close coordination between marketing and sales management in designing a promotion program involving both advertising and sales force incentives. Keywords: sales contests, advertising, integrated marketing communications, synergy, resource allocation In many markets today such as financial services or prescription drug sales settings, a firm’s sales are a function of both advertising and personal selling efforts (e.g., journal and/or DTC advertising, sampling and detailing in new pharmaceutical product marketing). Such efforts can have main as well as interaction or synergistic effects as highlighted in the Integrated Marketing Communications (IMC) literature, e.g., Schultz (1993), Belch and Belch (1998), Naik and Raman (2003). For example, product advertising can make personal selling more productive in business markets as demonstrated by Morrill (1970) over three decades ago. In addition to raising selling effectiveness, advertising can also contribute to higher levels of selling efficiency (Hutt and Speh, 2004, p. 412). Not surprisingly, companies like IDS Financial Services utilize a mix of advertising and sales force incentive programs, e.g., sales contest-based bonuses and memberships in the President’s Advisory Council for top finan- cial agents, to drive sales (Deighton, 1996). Determining the optimal allocation of a fixed promotion budget between agent-focused sales incentives and customer-focused advertis- ing taking into account any synergy between them is then a key decision for companies like IDS (e.g., Drumwright, 1995). So far, however, no normative model-based solution to this type of promotion mix resource allocation problem is found in the marketing literature. ∗ Corresponding author.