Truly Maximize the ROI of Sales' and Marketing's Expenditures With Demand‐Driven Planning

AuthorAlan Dybvig
Date01 November 2015
Published date01 November 2015
© 2015 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22099
Truly Maximize the ROI of Sales’
and Marketing’s Expenditures With
Demand-Driven Planning
Alan Dybvig
This article is
divided into
four sections:
(1) Origins of demand-
driven planning;
(2) Current status of
two ddp applications:
marketing-mix mod-
eling and demand-
driven forecasting;
(3) Limitations of
mmm and ddf and
how an OIS addresses
them; (4) Conclusions.
demand is the criti-
cal independent vari-
able in the planning
process; it is demand
as expressed in the
forecast that drives the process.
However, the essence of demand-
driven planning is the opposite,
where demand is treated as a
dependent variable driven by sales
and marketing expenditures.
The author first encoun-
tered the demand-driven con-
cept more than 10 years ago
while doing research for what
has become the product that
creates an optimized income
statement (OIS).
Itwas in a working
paper for the Sloan
School of Manage-
ment by John D.
Little, “Models
and Managers: The
Concept of Deci-
sion Calculus.” The
article describes
an online model
for use by product
managers on adver-
tising budget ques-
tions. The objective
was to size and
allocate advertis-
ing expenditures,
and the model was
appropriately called
In Little’s paper,
he describes the
data required for
generating the “sales
response to advertising func-
tion” and its shape (Exhibit 1).
Interestingly, the mathemati-
cal expression in this model
remains the most common one
35 years later.
This is a follow-on article to the author’s JCAF September/
October 2015 article titled “Optimizing the Income State-
ment With Advanced Analytics to Truly Maximize Profit
and More: Reimaging the Enterprise Master Plan.” (See
abstract for a copy.) In it, the author observed that is
possible to think of the optimized income Statement (OIS)
from a demand standpoint—as an optimized demand-
driven plan (ODDP). This article elaborates on this premise,
including: (1) how sales and marketing activities drive
demand/forecast as a dependent variable; (2) how an OIS
not only truly maximizes profit but also truly maximizes
the return on investment (ROI) of sales and marketing
expenditures. (As described in the previous article, the
OIS proof-of-concept model improved ROI between 28%
and 158%), (3) how an OIS aligns the entire organization’s
annual planning effort by driving much closer cross-
functional planning collaboration, particularly between the
chief financial officer (CFO) and sales and marketing. This
collaboration will take the firm, under the CFO’s leader-
ship, to the “next generation” of annual planning, tha t is,
for the first time ever, truly optimized.
© 2015 Wiley Periodicals, Inc.

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