Coordinating advertising and pricing in a manufacturer–retailer channel (original) (raw)
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National advertising and cooperation in a Manufacturer-two retailers channel
We consider a supply channel composed of one manufacturer and two symmetric retailers. Three cases are studied. The non-cooperation case is a leader-follower relationship. The manufacturer determines his spending in national advertising and the wholesale price. Then, retailers determine non-cooperatively the price for consumers. In the partial-cooperation case, retailers decide jointly for the price. In the full-cooperation case, all members of the channel cooperate by maximizing a joint profit function. Interestingly, partial-cooperation reduces the profits of retailers with respect to non-cooperation, when the degree of substituability between the two products proposed by retailers is low. Because of symmetry, this also implies that the total profit of retailers may decrease with partial-cooperation. Thus, when the degree of substituability between products is low, it is in the interest of retailers to set their prices non-cooperatively. We propose a cooperative implementable cont...
2016
The manufacturer participating in a cooperative advertising scheme reimburses a percentage of local advertising expenditures to encourage the retailer into more promotional initiatives. The present study aims to investigate the supply chain coordination through cooperative advertising and pricing by proposing a relatively general consumer demand function. Based on the underlying balance of power among supply chain members, four possible game structures are discussed including the Nash, Stackelberg retailer, Stackelberg manufacturer and cooperation games. Moreover, numerical simulations are provided to exemplify implicit optimal solutions of the Stackelberg retailer-manufacturer games while they will also be used for comparison of the four games. The unprecedented results obtained from this study may be summarized as follows: 1) the cooperation game is strongly found to be infeasible depending on the certain channel's parameters; 2) contrary to previous findings, the manufacturer's margin is found to be always lower than the retailer's in the Stackelberg retailer game; 3) in the Stackelberg manufacturer game, the manufacturer prefers to advertise nationally rather than to support local promotional activities when retailer advertising becomes inefficient; 4) we find that the manufacturer`s price is entirely stable compared to classical linear model and increases as effectiveness ratio of national to local advertising increases.
Co-op advertising and pricing models in manufacturer–retailer supply chains
Computers & Industrial Engineering, 2009
Cooperative (co-op) advertising plays a significant role in marketing programs in conventional supply chains and makes up the majority of promotional budgets in many product lines for both manufacturers and retailers. Nevertheless, most studies to date on coop advertising have only assumed that the market demand is only influenced by the advertising level but not in any way by the retail price. That is why our work is concerned with coop advertising and pricing strategies in distribution channels consisting of a manufacturer and a retailer. Four different models are discussed which are based on three non-cooperative games (i.e., Nash, Stackelberg retailer and Stackelberg manufacturer) and one cooperative game. We identify optimal coop advertising and pricing strategies for both firms mostly analytically but we have to resort to numerical simulations in one case. Comparisons are then made about various outcomes, especially the profits, for all cases. This leads to consider more specifically the cooperation case in which profits are the highest for both the retailer and the manufacturer, and how they should share the extra joint profit achieved by moving to cooperation. We solve this bargain problem using the Nash bargaining model.
Coop Advertising Programs Under Competitive Market Structures
2003
We examine whether cooperative advertising programs could constitute an effective tool to coordinate competitive marketing channels. While previous studies showed that such programs increase total channel profits in bilateral monopolies, no evidence of such a result has been provided for channels where competition is present at manufacturing and/or retailing levels. In this paper, we consider a distribution channel formed of two manufacturers and two retailers and propose a model that accounts for brand and store competitive interactions. The efficiency of the coop plan is investigated by comparing Nash equilibria of two non-cooperative games; one where manufacturers do not offer any promotional support to the retailers, and one where manufacturers do offer such a support. We show that when competition is introduced at a channel level, the efficiency of the coop program is no more guaranteed for members who operate at that level. Further, for symmetric channel members, we find that cooperative advertising programs are indeed implemented only under some conditions on brand and store substitution rates. Finally, for all competitive scenarios, we show that cooperative programs are optimal for consumers.
Dynamic cooperative advertising under manufacturer and retailer level competition
European Journal of Operational Research
We study dynamic cooperative advertising decisions in a market that consists of a finite number of independent manufacturers and retailers. Each manufacturer sells its product through all retailers and can offer different levels of advertising support to the retailers. Each retailer sells every manufacturer's product and may choose to carry out a different amount of local advertising effort to promote the products. A manufacturer may offer to subsidize a fraction of the local advertising expense carried out by a retailer for its product, and this fraction is termed as that manufacturer's subsidy rate for that retailer. We model a Stackelberg differential game with manufacturers as leaders and retailers as followers. A Nash game between the manufacturers determines their subsidy rates for the retailers and another Nash game between the retailers determines their optimal advertising efforts for the products they sell in response to manufacturers' decisions. We obtain optimal policies in feedback form. In some special cases, we explicitly write the incentives for coop advertising as functions of different model parameters including the number of manufacturers and retailers, and study the impact of the competition at the manufacturer and the retailer levels. We analyse the profits of the players and find the model parameters under which a manufacturer benefits from a coop advertising program. Furthermore, in the case of two manufacturers and two retailers, we study the effect of various model parameters on all four subsidy rates. We also extend our model to include national level advertising by the manufacturer.
Cooperative advertising in a marketing channel
2001
This paper examines dynamic advertising and promotion strategies in a marketing channel where the retailer promotes the manufacturer product and the manufacturer spends on advertising to build a stock of goodwill. We assume that sales depend on goodwill and promotion activities and that there are decreasing marginal returns to goodwill. Two scenarios are studied. First, the manufacturer and retailer determine noncooperatively their respective strategies. Second, the game is played à la Stackelberg with the manufacturer as the leader who supports partially the cost of the promotion activities of the retailer. In both cases, stationary Markovian strategies are characterized. These scenarios are examined also in the absence of decreasing marginal effect of goodwill on sales. The results show that, whether or not the goodwill stock has a decreasing marginal effect on sales, the cooperative advertising program is a coordinating mechanism in the marketing channel, i.e., both players receive higher payoffs.
Dynamic cooperative advertising in a channel
Journal of Retailing, 2000
The paper studies a two-member channel in which a manufacturer and an exclusive retailer can make advertising expenditures that have both short and long term impacts on the retailer's sales. The manufacturer can also support both retailer's advertising efforts through a cooperative advertising program. Four scenarios are considered. In the first, which acts as a benchmark, the manufacturer provides no support to the retailer's advertising. In the second, the manufacturer supports both types of retailer advertising. In the two remaining cases, the manufacturer supports only one of the two types of retailer advertising efforts. In all cases we assume that the manufacturer wishes to coordinate the channel so as to obtain maximal profits for himself. Our analysis of these options shows that supporting both types of retailer advertising provides more profit to both channel members than any of the two cases of partial support. The latter is, however, better than no support. We derive managerial implications from the theoretical results.
2015
Game theory is a relevant and powerful tool for analyzing strategic interactions in a supply chain in which the decision of each player affect the payoff of other players. In order to relax the classical two supply chain members' situation to a three supply chain members' situation and to integrate the problem of competition at retail level, we consider a supply chain consisting of a monopolistic manufacturer and two duopolistic retailers. The latter two are geographically related. Our paper examines the optimal decisions on advertising (local, national and cooperative advertising) in a centralized and a decentralized supply chain using Stackelberg-Cournot game, Stackelberg-Collusion game and Cooperative games, and we investigate the impact of the existing of competition at retail level, the retailer coalition and the cooperation between all supply chain members' on the channel members' optimal decisions, on the sales volume and on the profits. Applying the equilibrium analysis and using numerical example, comparing results indicates that all advertising, the sales volume of each member and the total profit in the centralized decision-making are larger than those in the decentralized decision-making. Retailer coalition harms themselves (in terms of profit) despite the increasing of sales, but is beneficial to the manufacturer. We identify also the feasible solutions of the best cooperative advertising scheme that members are interesting in cooperation.
2015
In this paper, we develop a game theoretic model for cooperative advertising in a supply chain consisting of a monopolistic manufacturer selling its product to the consumer only through competing duopolistic retailers. We consider a new form of the demand function which is an additive form. The demand is influenced by both retail price and advertising expenditures. To identify optimal advertising and pricing decisions, we discuss three possible games (two non cooperative games including Stackelberg-Cournot and Stackelberg-Collusion, and one cooperative game) and then we compare the various decision variables and the profits for all cases and also with similar results of the existing literature to develop some important insights.