Abstract
Marketing is a functional area within a business firm. It includes all the activities that the firm has at its disposal to sell products or services to other firms (wholesalers, retailers) or directly to the final consumers. A marketing manager needs to decide strategies for pricing (toward consumers and middlemen), consumer promotions (discounts, coupons, in-store displays), retail promotions (trade deals), support of retailer activities (advertising allowances), advertising (television, internet, cinemas, newspapers), personal selling efforts, product strategy (quality, brand name), and distribution channels. Our objective is to demonstrate that differential games have proved to be useful for the study of a variety of problems in marketing, recognizing that most marketing decision problems are dynamic and involve strategic considerations. Marketing activities have impacts not only now but also in the future; they affect the sales and profits of competitors and are carried out in environments that change.
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Notes
- 1.
Aust and Buscher (2014) present a figure showing the number of publications on cooperative advertising per year, from 1970 to 2013.
- 2.
- 3.
Example sareshort - term price promotionsor advertising campaigns.
- 4.
Letting sales appear as \(\sqrt{S}\) instead of linearly turns out to be mathematically expedient, cf. Sorger (1989).
- 5.
- 6.
This phenomenon, that a profit function is “flat,” has been observed elsewhere. One example is Wilson’s formula in inventory planning.
- 7.
Most often, an OLSE is not time-consistent and the leader’s announcement is incredible. The problem can be fixed if the leader precommits to its announced strategy.
- 8.
See also Eliashberg and Jeuland (1986).
- 9.
It may happen that, say, a manufacturer has a strong bargaining position and can induce the other channel members to make decisions such that the payoff of the manufacturer (not that of the channel) is maximized.
- 10.
An extreme case is vertical integration where channel members merge and become one firm.
- 11.
The meaning of are ference price is the following. Suppose that the probability that aconsumer chooses brand X instead of brand Y depends not only on the current price soft he brands but also on the irrelative values when compared to his to ric prices of the brands. The serelative values, as perceived by the consumer, are called reference prices. See, e. g., Rao ( 2 0 0 9 ).
- 12.
Myopic behavior means that a decision-maker disregards the dynamics when solving her dynamic optimization problem.
- 13.
In practice it may be illegal to discriminate retailers, for example, by offering different advertising allowances or quoting different wholesale prices.
- 14.
In less altruistic environments, a leader may wish to induce the follower to make decisions that are in the best interest of the leader.
- 15.
Note that there may be a problem of free-riding if franchisees can decide independently on service. The reason is that a franchisee who spends little effort on service gets the full benefit of her cost savings but shares the damage to goodwill with the other franchisee.
- 16.
A revenue-sharing contract is one in which a retailer pays a certain percentage of her sales revenue to the supplier who reciprocates by lowering the wholesale price. This enables the retailer to order more from the supplier and be better prepared to meet demand. A classic example here is Blockbuster, operating in the video rental industry, that signed revenue-sharing contracts with movie distributors. These arrangements were very successful (although not among Blockbuster’s competitors).
- 17.
- 18.
A model with a linear advertising cost, say, ca i and where a i on the right-hand side of the dynamics is replace by, say \(\sqrt{a_{i },}\) will provide the same results, qualitatively speaking, as the present model. To demonstrate this is left as an exercise for the reader.
- 19.
We shall disregard “numerical examples” where solutions are characterized using more or less randomly chosen data (typically, the values of model parameters).
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Jørgensen, S. (2016). Marketing. In: Basar, T., Zaccour, G. (eds) Handbook of Dynamic Game Theory. Springer, Cham. https://doi.org/10.1007/978-3-319-27335-8_22-1
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