Efficiency, effectiveness and productivity of marketing in services

Hean Tat Keh, Singfat Chu, Jiye Xu

Research output: Contribution to journalArticleResearchpeer-review

132 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)265-276
Number of pages12
JournalEuropean Journal of Operational Research
Volume170
Issue number1
DOIs
Publication statusPublished - 11 Oct 2005

Keywords

  • Data envelopment analysis
  • Effectiveness
  • Efficiency
  • Marketing
  • Productivity
  • Services

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