4 Presentations

• 
  10:40 AM - 11:05 AM

  A Differential Game of Inbound Marketing

  • Olivier Rubel, presenter, University of California

  Inbound marketing encompasses all online activities that managers use to pull potential prospects to firms’ digital platforms to convert them into leads and ultimately into sales. Such tasks necessitate the concerted efforts of the marketing and sales departments. The marketing department creates leads and the sales department converts these leads into sales. This two-step process usually suffers from inefficiencies due to the lack of coordination of the two departments. Marketers blame sales reps for not following up leads and sales reps blaming marketers for low quality leads. We propose a Stackelberg differential game model of inbound marketing to investigate how firms should dynamically allocate resources to the two functions. We analytically characterize the equilibrium strategies of the marketing department, the sales department and the firm. The feedback equilibrium strategies are sub-game perfect and provide novel managerial insights on the optimal coordination of the two functions.

• 
  11:05 AM - 11:30 AM

  Advertising and Quality Improving Strategies in a Marketing Channel When Facing Potential Crisis

  • Lijue Lu, presenter, Universitat de Barcelona
  • Jorge Navas, Universitat de Barcelona, BEAT

  Corporates face uncertainties. Product-harm crises can occur at random time instants (e.g., Samsung had to recall their Galaxy Note 7 which had critical failures in the batteries and can result in fires, Ford issued several recalls for millions of cars/trucks with loose steering wheels/unseated gear shift cable locking clip). Since the occurrence of such unexpected crises may damage a brand's goodwill, sales and profitability, far-sighted managers should be able to take it into account when making decisions.

  To address this issue, in this paper we study an advertising and quality management game with a piecewise deterministic process. We consider a supply chain consisting of a single manufacturer and a single retailer, where the manufacturer controls the global advertising and quality improvement, while the retailer focuses in the local advertising. We adopt the demand model proposed by Nerlove and Arrow (1962) and assume that when the crisis happens, the companies suffer a sharp decrease in the goodwill.

  We characterize the stationary Markovian Nash equilibrium, and then we compare the corresponding strategies and outcomes with those of the case where the potential crises are absent. We also evaluate the effects of crisis likelihood and damage rate.

• 
  11:30 AM - 11:55 AM

  A Differential Game of Pricing and Advertising for National and Store Brands

  • Sihem Taboubi, GERAD - HEC Montréal

  This paper deals with the issue of price and non-price marketing decisions for national and store brands in distribution channels. We use a differential game to investigate two scenarios taking place in a bilateral monopoly. In the first scenario, used as a benchmark, we consider that an exclusive retailer distributes only a national brand provided by the manufacturer. In the second scenario, the retailer introduces in the market a new store brand, which acts as a substitute of the national brand. We compute strategies and profits under both scenarios in order to provide answers to the following research questions: (1) what should be the prices and the non-price marketing decisions before and after the introduction of the store brand? (2) how do channel members strategies and profits compare? and (3) under which circumstances is the introduction of a private label profitable for the retailer?

• 
  11:55 AM - 12:20 PM

  Strategic rivalry for market share: A contest theory approach to dynamic advertising competition

  • Steffen Jorgensen, presenter, Odense University

  Abstract The paper extends the Lanchester model of advertising competition to a setup in
  which the rate at which a firm attracts customers from its competitors depends not only on the
  firm’s own advertising effort, but also on the efforts of its rivals. Doing so enables us to use
  attraction rate specifications borrowed from the economic theory of contests. Exploiting the
  fact that the sum of attraction rates equals one, we show that the differential equations that
  define the evolution ofmarket shares in the Lanchester model can be considerably simplified.
  This makes the optimization problems of the firms considerably easier to analyze. Finallly,
  to illustrate how the above extensions work, three alternative specifications of attraction rates
  are studied: the Tullock ratio formulation, a linear transformation of the Tullock ratio, and a
  specification that incorporates an exogenous bias.
  Keywords Advertising competition · Market shares · Differential games · Contest theory