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Goodwill and dynamic advertising strategies

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  • Toker Doganoglu

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  • 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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kinnucan, Henry W. & Gong, Li, 2014. "Goodwill and Export Promotion Dynamics," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 46(01), pages 73-88, February.
    2. repec:bla:randje:v:47:y:2016:i:4:p:1029-1056 is not listed on IDEAS
    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.
    4. Pau Roldan & Laurent Cavenaile, 2016. "Advertising, Innovation and Economic Growth," 2016 Meeting Papers 150, Society for Economic Dynamics.
    5. Brett R. Gordon & Wesley R. Hartmann, 2013. "Advertising Effects in Presidential Elections," Marketing Science, INFORMS, vol. 32(1), pages 19-35, June.
    6. Navdeep 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.
    7. repec:eee:ijrema:v:29:y:2012:i:2:p:111-122 is not listed on IDEAS
    8. 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.
    9. repec:ags:joaaec:163206 is not listed on IDEAS
    10. 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.
    11. Yoau-Chau Jeng & Fei-Rung Chiu, 2010. "Allocation model for theme park advertising budget," Quality & Quantity: International Journal of Methodology, Springer, vol. 44(2), pages 333-343, February.
    12. 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.
    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. Marc Fischer & Sönke Albers & Nils Wagner & Monika Frie, 2011. "Practice Prize Winner --Dynamic Marketing Budget Allocation Across Countries, Products, and Marketing Activities," Marketing Science, INFORMS, vol. 30(4), pages 568-585, July.

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