Vertical Cooperative Advertising with Substitute Brands (original) (raw)

Retail competition and cooperative advertising

2011

We consider a cooperative advertising channel consisting of a manufacturer selling its product through a retailer in competition with another independent retailer. The manufacturer subsidizes its retailer's advertising only when a certain threshold is positive. Moreover, the manufacturer's support for its retailer is higher under competition than in its absence.

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 dynamic retail market duopoly

2010

Abstract: Cooperative advertising is an important incentive offered by a manufacturer to influence retailers' promotional decisions. We analyze a retail market duopoly where one or both of competing retailers are supported by the manufacturer in their advertising costs.

Cooperative advertising with two local advertising options in a retailer duopoly

Scientia Iranica

This paper considers the issue of cooperative advertising with local advertising options in a channel with three players, including a manufacturer and two retailers. The current study, expands the cooperative advertising literature to a case where there exist two options for local advertising investment. Moreover, this paper compares two cases of presence and absence of cooperative advertising, which has almost been neglected in cooperative advertising literature. The purpose is to determine equilibrium strategy of retailers' advertising options, players' advertising expenditures and the manufacturer' participation rates on retailers' investment. The aforementioned problem is analyzed as a three-stage game, using backward induction. In the first and second stages, advertising investments of players are determined analytically. Then, in the third stage, the Nash equilibrium pair of advertising options can be found using numerical study. The problem is solved using illustrative examples in two cases of presence and absence of the cooperative advertising contract. Finally, the conditions for which offering the contract is win-win for all players, are identified. A Sensitivity analysis has been carried out to explain the efficacy of the model.

Co‐Op Advertising in Dynamic Retail Oligopolies

2012

ABSTRACT We study a supply chain in which a consumer goods manufacturer sells its product through a retailer. The retailer undertakes promotional expenditures, such as advertising, to increase sales and to compete against other retailer (s). The manufacturer supports the retailer's promotional expenditure through a cooperative advertising program by reimbursing a portion (called the subsidy rate) of the retailer's promotional expenditure.

Could co-op advertising be a manufacturer's counterstrategy to store brands?

Journal of Business Research, 2006

We propose a model to study the decision of a private level introduction for a retailer and its effects on the manufacturer. We investigate whether the manufacturer can counter the harmful effects of this introduction, if any, by implementing a cooperative advertising program. Our model accounts for prices and for local advertising undertaken by the retailer for the national brand. We show that the private label introduction is profit-improving for the retailer and the channel although it could harm the manufacturer's profits. However, for a specific range of the retailer's advertising efficiency and of the price competition intensity, the manufacturer could profit from the private label introduction. Our findings suggest also that the co-op plan is an efficient counterstrategy for the manufacturer and the retailer would accept its implementation only if the national brand competes strongly with the private label.

A note on “Cooperative advertising, game theory and manufacturer–retailer supply chains”

Omega-international Journal of Management Science, 2006

This note extends the results in the manufacturer-dominated game model of the paper by Li et al. (Omega 30 (2002) 347) to the case where the manufacturer's marginal profit is not large enough. In such situations, the profit of the entire supply chain under the co-op advertising mode is higher than the one under the Stackelberg game, which is consistent

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.

An analysis of manufacturer-retailer supply chain coordination in cooperative advertising

Decision Sciences, 2002

In the literature of cooperative (co-op) advertising, the focus of the research is on a relationship in which a manufacturer is the leader and retailers are followers. This relationship implies the dominance of the manufacturer over retailers. Recent market trends have shown a shift in power from manufacturers to retailers. Retailers, as aresult, may now possess equal or even greater power than a manufacturer in some instances when it comes to retailing. Based on this new market phenomenon, we intend to explore the role of co-op advertising in a manufacturer-retailer supply chain through brand name investments, local advertising expenditures, and sharing rules of advertising expenses. Two co-op advertising models are developed and compared. The first co-op advertising model is based on the traditional leader-follower relationship of a manufacturer and a retailer. The second model incorporates partnership into co-op advertising coordination. Business examples and managerial implications of the models have been discussed. A cooperative bargaining technique is utilized to implement the partnership co-op advertising model.

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.