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Optimal Advertising Policies for Diffusion Models of New Product Innovation in Monopolistic Situations

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  • Engelbert Dockner

    (Institute of Economic Theory and Policy, University of Economics, Augasse 2-6, A-1090 Vienna, Austria and Department of Economics, University of Saskatchewan, Saskatoon, Saskatchewan, S7N 0W0, Canada)

  • Steffen Jørgensen

    (Institute of Theoretical Statistics, Copenhagen School of Economics and Business Administration, Julius Thomsens Plads 10, DK-1925 Frederiksberg C, Denmark)

Abstract

This paper deals with the determination of optimal advertising strategies for new product diffusion models. We consider the introduction of a new consumer durable in a monopolistic market and the evolution of sales is modelled by a flexible diffusion model. Repeat sales and possible entry of rivals are disregarded but we allow for discounting of future revenue streams and cost learning curve. Using standard methods of optimal control theory we characterize qualitatively the structure of an optimal advertising strategy for different versions of the diffusion model.

Suggested Citation

  • Engelbert Dockner & Steffen Jørgensen, 1988. "Optimal Advertising Policies for Diffusion Models of New Product Innovation in Monopolistic Situations," Management Science, INFORMS, vol. 34(1), pages 119-130, January.
    • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:1:p:119-130
    DOI: 10.1287/mnsc.34.1.119
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    Cited by:

    1. M. Breton & F. Chauny & G. Zaccour, 1997. "Leader–Follower Dynamic Game of New Product Diffusion," Journal of Optimization Theory and Applications, Springer, vol. 92(1), pages 77-98, January.
    2. Liu, John, 2000. "On the dynamics of stochastic diffusion of manufacturing technology," European Journal of Operational Research, Elsevier, vol. 124(3), pages 601-614, August.
    3. Hariharan, Vijay Ganesh & Talukdar, Debabrata & Kwon, Changhyun, 2015. "Optimal targeting of advertisement for new products with multiple consumer segments," International Journal of Research in Marketing, Elsevier, vol. 32(3), pages 263-271.
    4. V Kumar & Amalesh Sharma & Shaphali Gupta, 2017. "Accessing the influence of strategic marketing research on generating impact: moderating roles of models, journals, and estimation approaches," Journal of the Academy of Marketing Science, Springer, vol. 45(2), pages 164-185, March.
    5. Ghobadi, Somayeh Najafi- & Bagherinejad, Jafar & Taleizadeh, Ata Allah, 2021. "A two-generation new product model by considering forward-looking customers: Dynamic pricing and advertising optimization," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    6. Alexei Parakhonyak & Nick Vikander, 2019. "Optimal Sales Schemes for Network Goods," Management Science, INFORMS, vol. 65(2), pages 819-841, February.
    7. Trichy V. Krishnan & Dipak C. Jain, 2006. "Optimal Dynamic Advertising Policy for New Products," Management Science, INFORMS, vol. 52(12), pages 1957-1969, December.
    8. Mesak, Hani I. & Bari, Abdullahel & Babin, Barry J. & Birou, Laura M. & Jurkus, Anthony, 2011. "Optimum advertising policy over time for subscriber service innovations in the presence of service cost learning and customers' disadoption," European Journal of Operational Research, Elsevier, vol. 211(3), pages 642-649, June.
    9. Duan, Hongbo & Zhang, Gupeng & Wang, Shouyang & Fan, Ying, 2018. "Peer interaction and learning: Cross-country diffusion of solar photovoltaic technology," Journal of Business Research, Elsevier, vol. 89(C), pages 57-66.
    10. Teng, Jinn-Tsair & Thompson, Gerald L., 1996. "Optimal strategies for general price-quality decision models of new products with learning production costs," European Journal of Operational Research, Elsevier, vol. 93(3), pages 476-489, September.
    11. M. Berk Ataman & Carl F. Mela & Harald J. van Heerde, 2008. "Building Brands," Marketing Science, INFORMS, vol. 27(6), pages 1036-1054, 11-12.
    12. Fouad El Ouardighi & Gustav Feichtinger & Gila E. Fruchter, 2018. "Accelerating the diffusion of innovations under mixed word of mouth through marketing–operations interaction," Annals of Operations Research, Springer, vol. 264(1), pages 435-458, May.
    13. Jiwen Ge & Dorothee Honhon & Jan C. Fransoo & Lei Zhao, 2021. "Supplying to Mom and Pop: Traditional Retail Channel Selection in Megacities," Manufacturing & Service Operations Management, INFORMS, vol. 23(1), pages 19-35, 1-2.
    14. Huang, Jian & Leng, Mingming & Liang, Liping, 2012. "Recent developments in dynamic advertising research," European Journal of Operational Research, Elsevier, vol. 220(3), pages 591-609.
    15. Gila E. Fruchter & Ashutosh Prasad & Christophe Van den Bulte, 2022. "Too Popular, Too Fast: Optimal Advertising and Entry Timing in Markets with Peer Influence," Management Science, INFORMS, vol. 68(6), pages 4725-4741, June.
    16. Barnes, Belinda & Southwell, Darren & Bruce, Sarah & Woodhams, Felicity, 2014. "Additionality, common practice and incentive schemes for the uptake of innovations," Technological Forecasting and Social Change, Elsevier, vol. 89(C), pages 43-61.
    17. Fruchter, Gila E. & Van den Bulte, Christophe, 2011. "Why the Generalized Bass Model leads to odd optimal advertising policies," International Journal of Research in Marketing, Elsevier, vol. 28(3), pages 218-230.
    18. Vahideh Sadat Abedi & Oded Berman & Dmitry Krass, 2014. "Supporting New Product or Service Introductions: Location, Marketing, and Word of Mouth," Operations Research, INFORMS, vol. 62(5), pages 994-1013, October.
    19. Elmar Kiesling & Markus Günther & Christian Stummer & Lea Wakolbinger, 2012. "Agent-based simulation of innovation diffusion: a review," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 20(2), pages 183-230, June.
    20. Hernández-Mireles, C. & Fok, D. & Franses, Ph.H.B.F., 2008. "The Triggers, Timing and Speed of New Product Price Landings," ERIM Report Series Research in Management ERS-2008-044-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    21. Rabih Salhab & Roland P. Malhamé & Jerome Le Ny, 2018. "A Dynamic Collective Choice Model with an Advertiser," Dynamic Games and Applications, Springer, vol. 8(3), pages 490-506, September.
    22. Sanjeev Swami & Pankaj Khairnar, 2006. "Optimal normative policies for marketing of products with limited availability," Annals of Operations Research, Springer, vol. 143(1), pages 107-121, March.
    23. Vahideh Sadat Abedi & Oded Berman & Fred M. Feinberg & Dmitry Krass, 2022. "Strategic new product media planning under emergent channel substitution and synergy," Production and Operations Management, Production and Operations Management Society, vol. 31(5), pages 2143-2166, May.
    24. Arda Yenipazarli, 2015. "A road map to new product success: warranty, advertisement and price," Annals of Operations Research, Springer, vol. 226(1), pages 669-694, March.

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