HEC Montréal, Canada, May 2 - 4, 2011

2011 Optimization Days

HEC Montréal, Canada, 2 — 4 May 2011

Schedule Authors My Schedule

MA7 Marketing I

May 2, 2011 10:30 AM – 12:10 PM

Location: Hélène-Desmarais

Chaired by Sihem Taboubi

4 Presentations

  • 10:30 AM - 10:55 AM

    Effectiveness of Retail Joint Promotions Under Different Channel Structures

    • Salma Karray, presenter, University of Ontario Institute of Technology

    We investigate the effects of horizontal joint promotions (HJP) initiated by competing retailers on the supply chain's strategies and profits and address the following questions; can HJP be profitable for competing retailers and for the whole channel? Under what market conditions and for which channel structures? We develop a game theoretic model to address these issues. We study market conditions conducive for profitable joint retail promotions under different channel structures; when both retailers are decentralized, centralized and when one is centralized and its competitor is decentralized. We find that for low levels of promotional effectiveness, HJP improves each channel member's profits through demand expansion and higher margins under all channel structures. However, a highly effective HJP can only be initiated by decentralized retailers. In particular, for low levels of cross price effects, demand decreases with HJP and so do the retailers' profits since the latter's gain in margins are not sufficient to neither pay for the lost unit sales nor cover the promotion's cost. However, for higher levels of cross price effects, HJP boosts demand and although it might still lead to lower retailers' profits, it will increase the manufacturers' and the total channel's profits. Manufacturers supplying products to decentralized retailers might lose from HJP. However, when that is the case, retailers do not have an incentive to invest in such a promotion. On the opposite, when manufacturers benefit from HJP, retailers could, in most cases, implement the HJP promotion even if they lose profits because the total channel profits are improved.

  • 10:55 AM - 11:20 AM

    Optimal Acquisition and Retention Strategies of New Subscribers Services

    • Tarek Ben Rhouma, presenter, GERAD - HEC-Montréal

    This work focuses on the diffusion of new subscriber services within a marketing relationship framework. We seek to determine how much a service provider should invest to attract new customers and retain existing ones throughout the lifecycle of service. A model relying on dynamic programming solution techniques has been developed to determine optimal strategies of customer acquisition and retention.

  • 11:20 AM - 11:45 AM

    Managing Advertising Budgets Under Competitive Clutter

    • Olivier Rubel, presenter, University of California

    Behavioral and empirical studies document that competitive clutter erodes firms’ advertising effectiveness in managing sales. In this context, when a manager increases the spending for his brand, he will also add to the clutter endured by its competitors, who might respond by increasing their advertising expenditures as well. Despite the vast literature on advertising competition, the question of how managers should manage their advertising investments under competitive clutter remains open. To fill this gap, we propose a dynamic competitive model where advertising generates two competitive effects, a competitive clutter effect and a cross-advertising effect. The model analysis yields three new insights. First, competitive clutter makes firms’ ad spending strategic substitutes, which implies that managers should scale back their ad spending under competitive advertising interference. Second, we show that firms should react only to the competitive clutter effect generated by their competitors and not to the cross advertising effect. Finally, competitive clutter makes firms to trade-off quality and quantity of ads, i.e. in some instances a firm would be better off airing more lower quality ads to shatter its competitor’s incentives to advertise.

  • 11:45 AM - 12:10 PM

    Channel Coordination in Bilateral Monopolies: A Dynamic Perspective

    • Sihem Taboubi, presenter, GERAD - HEC Montréal

    One of the major results announced in the literature on channel coordination states that vertical integration performs better than decentralization in bilateral monopolies. In this study, we want to examine if the results obtained in a static setting still hold if we consider the long term effect of pricing decisions.