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Goodwill and dynamic advertising strategies

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  • Toker Doganoglu
  • Daniel Klapper

Abstract

In this paper, we empirically analyze weekly advertising policies of manufacturing firms in consumer goods markets. We assume firms engage in persuasive advertising, thus policies of firms affect the goodwill of a brand. We introduce a demand and a goodwill production function. A simple transformation of the demand function allows us to identify not only the demand parameters but also the parameters of the goodwill production function. We reconstruct the unobserved goodwill levels using these parameters and past advertising levels. We restrict our attention to Markov Perfect Equilibrium (MPE) strategies which are functions of payoff relevant state variables. Without imposing further restrictions on the dynamic competitive environment, we investigate the relationship between observed advertising strategies—which are assumed to be MPE—and payoff relevant state variables by means of several reduced form specifications. The most important determinant of advertising intensity turns out to be goodwill. We demonstrate that controlling for an advertising campaign significantly improves the explanatory power of the model. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Toker Doganoglu & Daniel Klapper, 2006. "Goodwill and dynamic advertising strategies," Quantitative Marketing and Economics (QME), Springer, vol. 4(1), pages 5-29, March.
  • Handle: RePEc:kap:qmktec:v:4:y:2006:i:1:p:5-29
    DOI: 10.1007/s11129-006-6558-y
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    Cited by:

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    3. Simon P. Anderson & Federico Ciliberto & Jura Liaukonyte & Régis Renault, 2016. "Push-me pull-you: comparative advertising in the OTC analgesics industry," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 1029-1056, November.
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    5. Gary M. Erickson, 2009. "Advertising Competition in a Dynamic Oligopoly with Multiple Brands," Operations Research, INFORMS, vol. 57(5), pages 1106-1113, October.
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    7. Kinnucan, Henry W. & Gong, Li, 2014. "Goodwill and Export Promotion Dynamics," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 46(1), pages 73-88, February.
    8. Laurent Cavenaile & Pau Roldan-Blanco, 2021. "Advertising, Innovation, and Economic Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 251-303, July.
    9. Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre (Ed.), 2007. "Jahresbericht 2006," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 614, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    10. Ambarish Chandra & Matthew Weinberg, 2018. "How Does Advertising Depend on Competition? Evidence from U.S. Brewing," Management Science, INFORMS, vol. 64(11), pages 5132-5148, November.
    11. Navdeep S. Sahni, 2015. "Effect of temporal spacing between advertising exposures: Evidence from online field experiments," Quantitative Marketing and Economics (QME), Springer, vol. 13(3), pages 203-247, September.
    12. C. Clark & Ulrich Doraszelski & Michaela Draganska, 2009. "The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 207-236, June.
    13. Draganska, Michaela & Klapper, Daniel, 2010. "Choice Set Heterogeneity and the Role of Advertising: An Analysis with Micro and Macro Data," Research Papers 2063, Stanford University, Graduate School of Business.
    14. Albers, Sönke, 2012. "Optimizable and implementable aggregate response modeling for marketing decision support," International Journal of Research in Marketing, Elsevier, vol. 29(2), pages 111-122.
    15. Wesley R. Hartmann & Daniel Klapper, 2018. "Super Bowl Ads," Marketing Science, INFORMS, vol. 37(1), pages 78-96, January.
    16. Draganska, Michaela & Vitorino, Maria Ana, 2023. "Decomposing the effect of advertising: What happens in the retail channel?," International Journal of Research in Marketing, Elsevier, vol. 40(1), pages 226-247.
    17. Régis Chenavaz & Sajjad M. Jasimuddin, 2017. "An analytical model of the relationship between product quality and advertising," Post-Print hal-01685892, HAL.
    18. repec:ags:joaaec:163206 is not listed on IDEAS
    19. Mesak, Hani Ibrahim & Bari, Abdullahel & Lian, Qin, 2015. "Pulsation in a competitive model of advertising-firm's cost interaction," European Journal of Operational Research, Elsevier, vol. 246(3), pages 916-926.
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    22. Gijsenberg, Maarten J. & Nijs, Vincent R., 2019. "Advertising spending patterns and competitor impact," International Journal of Research in Marketing, Elsevier, vol. 36(2), pages 232-250.

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