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Cooperative Advertising in a Marketing Channel

Author

Listed:
  • S. Jørgensen

    (University of Southern Denmark, Odense University)

  • S. Taboubi

    (École des Hautes Études Commerciales)

  • G. Zaccour

    (École des Hautes Études Commerciales)

Abstract

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.

Suggested Citation

  • S. Jørgensen & S. Taboubi & G. Zaccour, 2001. "Cooperative Advertising in a Marketing Channel," Journal of Optimization Theory and Applications, Springer, vol. 110(1), pages 145-158, July.
    • Handle: RePEc:spr:joptap:v:110:y:2001:i:1:d:10.1023_a:1017547630113
    DOI: 10.1023/A:1017547630113
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    References listed on IDEAS

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    1. Pradeep K. Chintagunta & Dipak Jain, 1992. "A Dynamic Model of Channel Member Strategies for Marketing Expenditures," Marketing Science, INFORMS, vol. 11(2), pages 168-188.
    2. Sang Yong Kim & Richard Staelin, 1999. "Manufacturer Allowances and Retailer Pass-Through Rates in a Competitive Environment," Marketing Science, INFORMS, vol. 18(1), pages 59-76.
    3. S. Jørgensen & G. Zaccour, 1999. "Equilibrium Pricing and Advertising Strategies in a Marketing Channel," Journal of Optimization Theory and Applications, Springer, vol. 102(1), pages 111-125, July.
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