IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v68y2022i6p4725-4741.html
   My bibliography  Save this article

Too Popular, Too Fast: Optimal Advertising and Entry Timing in Markets with Peer Influence

Author

Listed:
  • Gila E. Fruchter

    (The Graduate School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel)

  • Ashutosh Prasad

    (School of Business, University of California Riverside, Riverside, California 92521)

  • Christophe Van den Bulte

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

We study optimal advertising and entry timing decisions for a new product being sold in two-segment markets in which followers are positively influenced by elites, whereas elites are either unaffected or repulsed by product popularity among followers. Key decisions in such markets are not only how much to advertise in each segment over time but also when to enter the follower segment. We develop a continuous-time optimal control model to examine these issues. Analysis yields two sets of two-point boundary value problems where one set has an unknown boundary value condition that satisfies an algebraic equation. A fast solution methodology is proposed. Two main insights emerge. First, the optimal advertising strategy can be U-shaped, that is, decreasing at first to free-ride peer influence but increasing later on to thwart the repulsion influence of overpopularity causing disadoption. Second, in markets where cross-segment repulsion triggers disadoption, advertising is only moderately effective, and entry costs are high, managing both advertising and entry timing can result in significantly higher profits than managing only one of these levers. In markets without disadoption, with high advertising effectiveness or with low entry costs, in contrast, delaying entry may add little value if one already manages advertising optimally. This implies that purveyors of prestige or cool products need not deny followers access to their products in order to protect their profits, and can use advertising to speed up the democratization of consumption profitably.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:6:p:4725-4741
    DOI: 10.1287/mnsc.2021.4105
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2021.4105
    Download Restriction: no

    File URL: https://libkey.io/10.1287/mnsc.2021.4105?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Donald Lehmann & Mercedes Esteban-Bravo, 2006. "When giving some away makes sense to jump-start the diffusion process," Marketing Letters, Springer, vol. 17(4), pages 243-254, December.
    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. Teck-Hua Ho & Shan Li & So-Eun Park & Zuo-Jun Max Shen, 2012. "Customer Influence Value and Purchase Acceleration in New Product Diffusion," Marketing Science, INFORMS, vol. 31(2), pages 236-256, March.
    5. Hartl, Richard F., 1987. "A simple proof of the monotonicity of the state trajectories in autonomous control problems," Journal of Economic Theory, Elsevier, vol. 41(1), pages 211-215, February.
    6. Hema Yoganarasimhan, 2012. "Cloak or Flaunt? The Fashion Dilemma," Marketing Science, INFORMS, vol. 31(1), pages 74-95, January.
    7. 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.
    8. Appel, Gil & Libai, Barak & Muller, Eitan, 2018. "On the monetary impact of fashion design piracy," International Journal of Research in Marketing, Elsevier, vol. 35(4), pages 591-610.
    9. S. P. Sethi & A. Prasad & X. He, 2008. "Optimal Advertising and Pricing in a New-Product Adoption Model," Journal of Optimization Theory and Applications, Springer, vol. 139(2), pages 351-360, November.
    10. Chun‐Hung Chiu & Tsan‐Ming Choi & Xin Dai & Bin Shen & Jin‐Hui Zheng, 2018. "Optimal Advertising Budget Allocation in Luxury Fashion Markets with Social Influences: A Mean‐Variance Analysis," Production and Operations Management, Production and Operations Management Society, vol. 27(8), pages 1611-1629, August.
    11. Anita Elberse & Jehoshua Eliashberg, 2003. "Demand and Supply Dynamics for Sequentially Released Products in International Markets: The Case of Motion Pictures," Marketing Science, INFORMS, vol. 22(3), pages 329-354.
    12. Trichy V. Krishnan & Dipak C. Jain, 2006. "Optimal Dynamic Advertising Policy for New Products," Management Science, INFORMS, vol. 52(12), pages 1957-1969, December.
    13. Christophe Van den Bulte & Yogesh V. Joshi, 2007. "New Product Diffusion with Influentials and Imitators," Marketing Science, INFORMS, vol. 26(3), pages 400-421, 05-06.
    14. Yansong Hu & Christophe Van den Bulte, 2014. "Nonmonotonic Status Effects in New Product Adoption," Marketing Science, INFORMS, vol. 33(4), pages 509-533, July.
    15. Dan Horsky & Leonard S. Simon, 1983. "Advertising and the Diffusion of New Products," Marketing Science, INFORMS, vol. 2(1), pages 1-17.
    16. Prasad A. Naik & Ashutosh Prasad & Suresh P. Sethi, 2008. "Building Brand Awareness in Dynamic Oligopoly Markets," Management Science, INFORMS, vol. 54(1), pages 129-138, January.
    17. Ruiz-Conde, Enar & Wieringa, Jaap E. & Leeflang, Peter S.H., 2014. "Competitive diffusion of new prescription drugs: The role of pharmaceutical marketing investment," Technological Forecasting and Social Change, Elsevier, vol. 88(C), pages 49-63.
    18. 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.
    19. Yogesh V. Joshi & David J. Reibstein & Z. John Zhang, 2009. "Optimal Entry Timing in Markets with Social Influence," Management Science, INFORMS, vol. 55(6), pages 926-939, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abedi, Vahideh Sadat, 2019. "Compartmental diffusion modeling: Describing customer heterogeneity & communication network to support decisions for new product introductions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 536(C).
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Peres, Renana & Muller, Eitan & Mahajan, Vijay, 2010. "Innovation diffusion and new product growth models: A critical review and research directions," International Journal of Research in Marketing, Elsevier, vol. 27(2), pages 91-106.
    7. 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.
    8. 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.
    9. M. Berk Ataman & Carl F. Mela & Harald J. van Heerde, 2008. "Building Brands," Marketing Science, INFORMS, vol. 27(6), pages 1036-1054, 11-12.
    10. 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).
    11. Trichy V. Krishnan & Dipak C. Jain, 2006. "Optimal Dynamic Advertising Policy for New Products," Management Science, INFORMS, vol. 52(12), pages 1957-1969, December.
    12. Olivier Toubia & Jacob Goldenberg & Rosanna Garcia, 2014. "Improving Penetration Forecasts Using Social Interactions Data," Management Science, INFORMS, vol. 60(12), pages 3049-3066, December.
    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. Hu, Hai-hua & Lin, Jun & Qian, Yanjun & Sun, Jian, 2018. "Strategies for new product diffusion: Whom and how to target?," Journal of Business Research, Elsevier, vol. 83(C), pages 111-119.
    15. 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.
    16. Régis Chenavaz & Sajjad M. Jasimuddin, 2017. "An analytical model of the relationship between product quality and advertising," Post-Print hal-01685892, HAL.
    17. Daekook Kang, 2021. "Box-office forecasting in Korea using search trend data: a modified generalized Bass diffusion model," Electronic Commerce Research, Springer, vol. 21(1), pages 41-72, March.
    18. Helmes, Kurt & Schlosser, Rainer & Weber, Martin, 2013. "Optimal advertising and pricing in a class of general new-product adoption models," European Journal of Operational Research, Elsevier, vol. 229(2), pages 433-443.
    19. Zhang, Qiao & Chen, Jing & Zaccour, Georges, 2020. "Market targeting and information sharing with social influences in a luxury supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    20. Krishnamoorthy, Anand & Prasad, Ashutosh & Sethi, Suresh P., 2010. "Optimal pricing and advertising in a durable-good duopoly," European Journal of Operational Research, Elsevier, vol. 200(2), pages 486-497, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:68:y:2022:i:6:p:4725-4741. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.