ISSN 0253-2778

CN 34-1054/N

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Open AccessOpen Access JUSTC Original Paper

Optimal pricing and advertising strategy concern the bilateral spillover effect of advertising investment

  • School of Management, University of Science and Technology of China, Hefei 230026, China

Cite this:
https://doi.org/10.3969/j.issn.0253-2778.2020.05.005
  • Received Date: 14 March 2019
  • Accepted Date: 14 June 2019
  • Rev Recd Date: 14 June 2019
  • Publish Date: 31 May 2020
    Abstract

  • Abstract

    Assuming the firm is highly responsive and has cost advantages and is thus capable of entering the market at the same time as the manufacturer by producing a similar version of the manufacturer’s new product. The impact of this mechanism on the two firms is studied through the bilateral spillover effect of advertisement. The main results are as follows. First, contrary to the traditional marketing concept——“good wine needs no bush”, the better quality the products, the more they need to be advertised. Second, our model explains why the quality of most copycats’ products is relatively poor. Finally, low quality products of copycat firms are expected by the manufacturer as well as the copycat firms. The advertising investment of a copycat firm will always increase its profits and reduce the manufacturer’s loss of profit caused by the copycat entering the market, which allows manufacturer and copycat to coexist in the market harmoniously.

    Abstract

    Assuming the firm is highly responsive and has cost advantages and is thus capable of entering the market at the same time as the manufacturer by producing a similar version of the manufacturer’s new product. The impact of this mechanism on the two firms is studied through the bilateral spillover effect of advertisement. The main results are as follows. First, contrary to the traditional marketing concept——“good wine needs no bush”, the better quality the products, the more they need to be advertised. Second, our model explains why the quality of most copycats’ products is relatively poor. Finally, low quality products of copycat firms are expected by the manufacturer as well as the copycat firms. The advertising investment of a copycat firm will always increase its profits and reduce the manufacturer’s loss of profit caused by the copycat entering the market, which allows manufacturer and copycat to coexist in the market harmoniously.
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    • References(23)
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    QIAN Y. Counterfeiters: Foes or friends? How counterfeits affect sales by product quality tier[J]. Management Science, 2014, 60(10): 2381-2400.
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    QIAN Y, GONG Q, CHEN Y. Untangling searchable and experiential quality responses to counterfeits[J]. Marketing Science, 2014, 34(4): 522-538.
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    CHO S H, FANG X, TAYUR S. Combating strategic counterfeiters in licit and illicit supply chains[J]. Manufacturing & Service Operations Management, 2015, 17(3): 273-289.
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    GAO S Y, LIM W S, TANG C. The impact of the potential entry of copycats: Entry conditions, consumer welfare, and social welfare[J]. Decision Sciences, 2017, 48(4): 594-624.
    [11]
    曾贺奇, 张玉林. 考虑消费者策略行为及产品具有替代性的多厂商定价[J]. 系统工程, 2017, 35(1): 130-137.
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    KNOTT A M, POSEN H E, WU B. Spillover asymmetry and why it matters[J]. Management Science, 2009, 55(3): 373-388.
    [13]
    VON ZEDTWITZ M, CORSI S, SBERG P V, et al. A typology of reverse innovation[J]. Journal of Product Innovation Management, 2015, 32(1): 12-28.
    [14]
    WANG X S, XIE Y, JAGPAL H S, et al. Coordinating R&D, product positioning, and pricing strategy: A duopoly model[J]. Customer Needs and Solutions, 2016, 3(2): 104-114.
    [15]
    李晓静, 艾兴政, 唐小我. 基于供应链竞争的技术创新价值与溢出效应[J]. 系统工程学报, 2017, 32(6): 808-817.
    [16]
    JRGENSEN S, ZACCOUR G. Equilibrium pricing and advertising strategies in a marketing channel[J]. Journal of Optimization Theory and Applications, 1999, 102(1): 111-125.
    [17]
    XIE J, WEI J C. Coordinating advertising and pricing in a manufacturer-retailer channel[J]. European Journal of Operational Research, 2009, 197(2): 785-791.
    [18]
    YUE J, AUSTIN J, WANG M C, et al. Coordination of cooperative advertising in a two-level supply chain when manufacturer offers discount[J]. European Journal of Operational Research, 2006, 168(1): 65-85.
    [19]
    BERGER P D. Vertical cooperative advertising ventures[J]. Journal of Marketing research, 1972, 9(3): 309-312.
    [20]
    TULL D S, WOOD V R, DUHAN D, et al.“Leveraged” decision making in advertising: The flat maximum principle and its implications[J]. Journal of Marketing Research, 1986, 23(1): 25-32.
    [21]
    DANT R P, BERGER P D. Modelling cooperative advertising decisions in franchising[J]. Journal of the Operational Research Society, 1996, 47(9): 1120-1136.
    [22]
    JRGENSEN S, SIGUE S P, ZACCOUR G. Dynamic cooperative advertising in a channel[J]. Journal of Retailing, 2000, 76(1): 71-92.
    [23]
    HUANG Z, LI S X, MAHAJAN V. An analysis of manufacturer-retailer supply chain coordination in cooperative advertising[J]. Decision Sciences, 2002, 33(3): 469-494.
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    [1]
    LAI K K Y, ZAICHKOWSKY J L. Brand imitation: do the Chinese have different views?[J]. Asia Pacific Journal of Management, 1999, 16(2): 179-192.
    [2]
    LEE H, TSENG M M, SIU P, et al. Shanzhai (“Bandit”) mobile phone companies: The guerrilla warfare of product development and supply chain management[EB/OL]. [2019-03-17] https://www.researchgate.net/publication/293482873_SHANZAI_BANDIT_MOBILE_PHONE_COMPANIES_THE_GUERILLA_WARFARE_OF_PRODUCT_DEVELOPMENT_AND_SUPPLY_CHAIN_MANAGEMENT,2010.
    [3]
    FORD T. I hate being copyied by Zara[N].Daily Mail,2013-04-16.
    [4]
    PUN H, DEYONG G D. Competing with copycats when customers are strategic[J]. Manufacturing & Service Operations Management, 2017, 19(3): 403-418.
    [5]
    CACHON G P, SWINNEY R. The value of fast fashion: Quick response, enhanced design, and strategic consumer behavior[J]. Management Science, 2011, 57(4): 778-795.
    [6]
    QIAN Y. Brand management and strategies against counterfeits[J]. Journal of Economics & Management Strategy, 2014, 23(2): 317-343.
    [7]
    QIAN Y. Counterfeiters: Foes or friends? How counterfeits affect sales by product quality tier[J]. Management Science, 2014, 60(10): 2381-2400.
    [8]
    QIAN Y, GONG Q, CHEN Y. Untangling searchable and experiential quality responses to counterfeits[J]. Marketing Science, 2014, 34(4): 522-538.
    [9]
    CHO S H, FANG X, TAYUR S. Combating strategic counterfeiters in licit and illicit supply chains[J]. Manufacturing & Service Operations Management, 2015, 17(3): 273-289.
    [10]
    GAO S Y, LIM W S, TANG C. The impact of the potential entry of copycats: Entry conditions, consumer welfare, and social welfare[J]. Decision Sciences, 2017, 48(4): 594-624.
    [11]
    曾贺奇, 张玉林. 考虑消费者策略行为及产品具有替代性的多厂商定价[J]. 系统工程, 2017, 35(1): 130-137.
    [12]
    KNOTT A M, POSEN H E, WU B. Spillover asymmetry and why it matters[J]. Management Science, 2009, 55(3): 373-388.
    [13]
    VON ZEDTWITZ M, CORSI S, SBERG P V, et al. A typology of reverse innovation[J]. Journal of Product Innovation Management, 2015, 32(1): 12-28.
    [14]
    WANG X S, XIE Y, JAGPAL H S, et al. Coordinating R&D, product positioning, and pricing strategy: A duopoly model[J]. Customer Needs and Solutions, 2016, 3(2): 104-114.
    [15]
    李晓静, 艾兴政, 唐小我. 基于供应链竞争的技术创新价值与溢出效应[J]. 系统工程学报, 2017, 32(6): 808-817.
    [16]
    JRGENSEN S, ZACCOUR G. Equilibrium pricing and advertising strategies in a marketing channel[J]. Journal of Optimization Theory and Applications, 1999, 102(1): 111-125.
    [17]
    XIE J, WEI J C. Coordinating advertising and pricing in a manufacturer-retailer channel[J]. European Journal of Operational Research, 2009, 197(2): 785-791.
    [18]
    YUE J, AUSTIN J, WANG M C, et al. Coordination of cooperative advertising in a two-level supply chain when manufacturer offers discount[J]. European Journal of Operational Research, 2006, 168(1): 65-85.
    [19]
    BERGER P D. Vertical cooperative advertising ventures[J]. Journal of Marketing research, 1972, 9(3): 309-312.
    [20]
    TULL D S, WOOD V R, DUHAN D, et al.“Leveraged” decision making in advertising: The flat maximum principle and its implications[J]. Journal of Marketing Research, 1986, 23(1): 25-32.
    [21]
    DANT R P, BERGER P D. Modelling cooperative advertising decisions in franchising[J]. Journal of the Operational Research Society, 1996, 47(9): 1120-1136.
    [22]
    JRGENSEN S, SIGUE S P, ZACCOUR G. Dynamic cooperative advertising in a channel[J]. Journal of Retailing, 2000, 76(1): 71-92.
    [23]
    HUANG Z, LI S X, MAHAJAN V. An analysis of manufacturer-retailer supply chain coordination in cooperative advertising[J]. Decision Sciences, 2002, 33(3): 469-494.
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