Cooperative Advertising Research Articles

Modelling pricing, vertical co-op advertising and quality improvement in a non-cooperative three-echelon supply chain using game theory approach

Vertical cooperative (co-op) advertising is one of the well-known mechanisms for coordination of supply chains. Vertical co-op advertising is a financial agreement in which a member of the chain pays certain percentage (i.e. cooperation rate) of a subsequent member’s advertisement cost. Since increasing the number of echelons and decision variables in supply chain problems increase the modelling and computational complexity, most researchers study vertical co-op advertising in a two-level supply chain including a manufacturer and a retailer. This paper investigates the problem by considering price and quality levels as additional decision variables in a three-echelon supply chain consisting of one supplier, one manufacturer, and one retailer. The ultimate goal is to show supply chain managers the importance of product quality as well the role of local advertisement in positively influencing market demand on top of the traditional approach of speed and efficiency optimization. Using game theory approach, power of the manufacturer is assumed to be higher than or equal to those of others in the chain. Five different relationships between players are considered in five non-cooperative games (named as G1–G5) and equilibrium solutions are extracted for each. The results show that the manufacturer prefers to play Stackelberg with the retailer and the supplier rather than be in conflict with them in Nash game. Such preference can lead manufacturer towards high quality and cost-efficient product/service via efficient advertisement in our complex network of business firms.

Coordinating pricing and advertising in a two-period fashion supply chain

Firms in the fashion industry frequently launch new styles of their products, thereby leading to a ‘two-period’ phenomenon in product sales: the normal selling time and the last salvage time. Researches about cooperative (co-op) advertising, however, seldom concentrate on this phenomenon. This study explores co-op advertising in a two-period fashion supply chain system in which the retailer offers a price discount in the second period. We derive the optimal pricing, product design level and advertising efforts in two scenarios: a decentralised scenario with a co-op advertising program and integrated scenario. Additionally, we propose a bilateral participation-revenue-sharing contract to coordinate this channel. Some insights and management implications are obtained. Firstly, if the consumers are insensitive to the first-period price, the retailer will set a high retail price in this period, while selling the product at a big discount in the second period to stimulate extra consumption. Secondly, if the price elasticity of demand is small, the retailer will spend more on the advertisement, otherwise the condition is opposite. Lastly, this study verifies that the bilateral participation-revenue-sharing contract can achieve a seamless coordination in this supply chain with a transfer payment.

Horizontal cooperative advertising with advertising threshold effects

The advertising threshold effect, which implies that advertising has little effect on sales if the level of advertising is below a certain level, has seldom been addressed in a modeling context. Inspired by the practice of horizontal cooperative advertising (HCA), this paper attempts to investigate the advertising threshold effect in a horizontal context and to explore the value of HCA programs. To investigate the advertising threshold effect in a horizontal context, we develop several advertising and pricing models that involve two horizontally related firms, where the advertising threshold effect is formulated by a two-regime sales function. We first consider the monopoly case and then extend it to a duopoly case. We further consider two HCA programs to explore the value of such programs, in which the firms share advertising expenditures to reduce their advertising cost. The findings include the following: (i) The presence of an advertising threshold can lead to sub-optimal advertising decisions. (ii) If one firm is influenced by the advertising threshold, this influence may be passed to its competitor. (iii) Although cooperative advertising is less cost effective than individual brand advertising, firms can benefit from HCA programs only when the advertising threshold is neither too high nor too low, and the synergy effect of cooperative advertising is not too low.

Advertising cooperation of dual-channel low-carbon supply chain based on cost-sharing

PurposeThis paper aims to analyze the impact of the cost coefficient of product emission reduction, coefficient of low-carbon product advertising effort cost, and sharing ratio of low-carbon product advertising effort cost on the profit of a dual-channel supply chain. After determining the best model and relevant influencing factors, the paper puts forward corresponding management inspirations and suggestions.Design/methodology/approachThe paper opts for an exploratory study using Stackelberg game theory to construct a centralized decision-making (MC mode), a low carbon product advertising effort cost free sharing decentralized decision-making (SD model) and a low carbon product advertising effort cost sharing decentralized decision-making (JD model) game model. Through using optimization methods to get the equilibrium solution, the relevant management suggestions are obtained by comparison analysis.FindingsThe paper shows that the JD model is better than the SD model in terms of the profits of the manufacturer, retailer and supply chain, and the improvement of Pareto is realized. The proportion of cost sharing of low carbon product advertising effort is positively related to the wholesale price and direct influence coefficient of low carbon product advertising effort on channel, while negatively related to the retail price and the cross influence coefficient of low carbon product advertising effort on alternative channels. Under the JD model, the manufacturer can reduce advertising costs through improving the efficiency and pertinence of direct channel advertising and urging the retailer to do a better job in sales management to improve gross margin and require the retailer to increase advertising efficiency and pertinence of retail channel to reduce advertising costs of retail channel and other ways to increase their profits. The retailer can make use of its advantages closer with consumers to improve the efficiency and pertinence of advertising in the retail channel to raise the influence coefficient of advertising and reduce the advertising cost in the retail channel.Originality/valueThe innovations of this paper are listed as follows: First, it has considered advertising investment from both the manufacturer and the retailer simultaneously. Second, it has considered a low-carbon background to investigate cooperative advertising decision for low-carbon products. Third, it has considered the decision on the level of product emission reduction and the level of low-carbon product advertising effort investment simultaneously.

An analysis of efficiency of time-consistent coordination mechanisms in a model of supply chain management

In this paper, we study an advertising dynamic game in supply chain management under the assumption that the agents differ in their time preference rates. We study two coordination mechanisms: the cost sharing program, where the retailer can get some reimbursement of the advertising cost from the manufacturer; and the vertical integration, where the two players aim to maximize the joint profit. We derive the time-consistent cooperative advertising strategies in each coordination setting, and we compare them with the non-cooperative case. Our results show that, the cost sharing program is Pareto superior to the non-cooperative setting, while vertical integration could be more preferred by the manufacturer and less preferred by the retailer if the initial goodwill level is sufficiently high. Besides, unlike previous results in the literature, we found that when the agents’ discount rates are very different, joint profits could be lower under vertical integration than in the non-cooperative case, which yields an inefficient cooperation.

Cooperative advertising models under different channel power structure

Cooperative (co-op) advertising is an arrangement between manufacturer and retailer, where two members initiate their respective advertising to help develop brand, motivate sales, and other purposes. This paper focuses on cooperative advertising in a supply chain consisting of one manufacturer and one retailer. As two basic elements of a supply chain, the channel power structure and information structure affect the firm’s pricing and advertising decisions. We attempt to investigate how they optimally decide their marginal returns and advertising investments. Utilizing the Stackelberg game theory, we derive the equilibrium of five scenarios in two different cases, i.e., (1) either the manufacturer or the retailer is acting as the Stackelberg leader and (2) whether the Stackelberg leader knows the advertising investment of his follower. Then we make a comparison and obtain some managerial implications as follows: (1) the supply chain power structure and the relative advertising effectiveness coefficient exert great influence on the optimal supply chain decisions, (2) the supply chain members’ profit is not parallel to their corresponding power structure, if the retailer’s advertising effectiveness is greater than the manufacturer’s, the Manufacturer-dominated Stackelberg game is a win–win strategy, and vice versa, (3) the dominant member can improve his and the overall performance of the supply chain by having the advertising information of the other.

Coordination through cooperative advertising in a two-period consumer electronics supply chain

Firms in the consumer electronics industry frequently launch new styles of their products, which leads to a “two-period” phenomenon in their product sales. Only a few published articles have considered two-period models in cooperative advertising. This paper investigates co-op advertising strategies in a two-period supply chain consisting of a single manufacturer and a single retailer. Utilizing game theory, we consider two different scenarios: a decentralized scenario with a cooperative advertising program and an integrated scenario. Aside from these scenarios, we propose a supply chain contract to coordinate this supply chain system. This paper has the following conclusions: (i) the manufacturer usually does not provide the same advertising subsidy strategy for the two generation products in the same period; (ii) the manufacturer may provide a low subsidy rate to the retailer if the advertising long-term effect is strong; and (iii) we demonstrate that the two-way subsidy contract can achieve a perfect supply chain coordination if a transfer payment exists.

Consignment contracts with cooperative programs and price discount mechanisms in a dynamic supply chain

This paper investigates whether a supply chain can achieve coordination by implementing two mechanisms: a cooperative advertising program and a price discount mechanism. We start by analyzing a consignment contract with a revenue-sharing agreement in which a manufacturer decides both the price and the quality investment while the retailer sets the store advertising efforts. The manufacturer is the brand owner and increases the goodwill through quality and pricing. We solve three dynamic games, in which the manufacturer is the Stackelberg leader, and compare the related solutions. We discover that the manufacturer, as chain leader, will always propose the adoption of a coordination mechanism. When the manufacturer opts for a cooperative program, the retailer is always economically better off; thus, a cooperative program is always profit-Pareto-improving. When the manufacturer opts for a price discount mechanism, the retailer is always economically worse-off because the discount applies only to her margins. Nevertheless, the price discount mechanism is profit-Pareto-improving in the case of high production cost: The price discount allows for considerably reducing the retail price, which translates to a substantial increase in demand. In all other cases, the retailer sets zero price discount, thus preferring a non-coordinated framework.

A game theoretic approach to coordinate pricing, ordering and co-op advertising in supply chains with stochastic demand

This paper combines the newsboy problem with the cooperative advertisement problem in the presence of uncertain demand which depends on retail price as well as both local and national advertising expenditures to coordinate pricing, ordering, and advertising decisions in a manufacturer-retailer supply chain. A game theoretic approach is adopted to determine the equilibrium values of the decisions. Three different game scenarios based on the newsboy problem model are developed and analyzed: 1) Stackelberg manufacturer game in which manufacturer as the dominant power plays the role of leader in the market and the follower retailer makes its own best decisions after observing the leader decisions, 2) Nash game wherein both manufacturer and retailer have equal power in the market and make their decisions simultaneously to find their own best strategies and 3) centralized scenario in which retailer and manufacturer make the best decisions by information sharing and joint cooperation. The equilibrium decisions are obtained exactly in the three scenarios. Some corollaries are also presented and theoretically proved to show the relationships among the variables in centralized vs. decentralized supply chain. Finally, some numerical examples are randomly generated and a sensitivity analysis is carried out to show capabilities of the proposed models.

Delayed effects of cooperative advertising in goodwill dynamics

This paper proposes a tool to control cooperative advertising which increases the goodwill of companies operating in a competitive market. We introduce the lag between advertising exposure and customer reaction in the goodwill dynamics evolved à la Nerlove–Arrow. As a result, we obtain a cooperative differential game with immediate and delayed effects of control variables for which we investigate the optimal solution. We examine the role the pre-coalition programmes and the length of delayed response in generating goodwill.

The Effects of Advertising Message Types Based on the Social Distance: Focusing on Cooperative Advertising between Different Types of Businesses

The Effects of Advertising Message Types Based on the Social Distance: Focusing on Cooperative Advertising between Different Types of Businesses

Co-op advertising in a dynamic supply chain when supply is disrupted

This paper studies a dynamic cooperative advertising under supply disruptions. Cooperative (Co-op) advertising is a widely used marketing tool which affects advertising effort policy and advertising subsidy policy throughout the supply chain. First, the manufacturer announces the participation rate of cooperative advertising which specifies the percentage of the retailer’s advertising expenditure that it will provide, then the retailer determines its advertising effort policy. We model this supply chain problem as a Stackelberg differential game, and provide the optimal advertising effort policy and advertising subsidy policy for the manufacturer and the retailer. Based on a Co-op advertising scenarios, we consider the supply disruption. When a supply disruption occurs, the initial cooperative advertising policy need to be revised. To solve this problem, the change of margin of manufacturer and retailer and market scale of product caused by supply disruption must be explicitly considered. This paper discusses how to model the supply disruptions and their impacts, and how to design cooperative advertising scheme under supply disruption.

Cooperative Advertising in a Two-Stage Supply Chain with Network Externalities

A two-stage game is developed with network externalities where, besides pricing decisions, the retailer and manufacturer can determine their advertising investments and advertising participation rates for each stage. In addition to the full cooperation advertising model, three part cooperation advertising models are established. We develop propositions and insights from the comparison of these models. Our main findings are as follows: 1) the equilibrium solutions critically depend on the effects of network externalities; 2) the optimal choice in a two-stage game is to achieve full cooperation; and 3) a second-best choice for the manufacturer is to share the retailer’s advertising in the first stage. Our research results have guiding significance for supply chain member’s decision-making in local advertising practice.

Feedback Equilibrium for Dynamic Competitive and Cooperative Advertising

This paper not only studies the competitive advertising between the manufacturer in direct channel and the upstream retailer which is in distribution channel, but also investigates the cooperative advertising between the upstream manufacturer and the downstream retailer in distribution channel in the case that the downstream retailer faces a competition from direct channel. Through the establishment of Nash game-theoretic model between the manufacturer in direct channel and the upstream retailer which is in distribution channel, the optimal advertising decisions of distribution channel and the downstream retailer are obtained. On the other hand, in order to obtain the optimal advertising strategies of members in distribution channel, Stackelberg game-theoretic models are established in this study. In this paper, we find that when there is a manufacturer in direct channel competing with distribution channel, the advertising participation rate from the upstream manufacturer to the downstream retailer is higher than that in no competitions. Under asymmetric and symmetric competition, the profit of the upstream retailer in distribution channel is always higher than that of the manufacturer in direct channel.

Feedback Stackelberg-Nash Equilibria in Mixed Leadership Games with an Application to Cooperative Advertising

In this paper we characterize the feedback equilibrium of a general infinite-horizon Stackelberg-Nash differential game where the roles of the players are mixed. By mixed we mean that one player is a leader on some decisions and a follower on other decisions. We prove a verification theorem that reduces the task of finding equilibrium strategies in functional spaces to two simple steps: First solving two static Nash games at the Hamiltonian level in a nested version and then solving the associated system of Hamilton-Jacobi-Bellman equations. As an application, we study a novel manufacturer-retailer cooperative advertising game where, in addition to the traditional setup into which the manufacturer subsidizes the retailer’s advertising effort, we also allow the reverse support from the retailer to the manufacturer. In this representative case, we find an equilibrium that can be expressed by a solution of a set of algebraic equations. We then conduct an extensive numerical study to assess the impact of model parameters on the equilibrium.

A manufacturer-retailers dynamic cooperative advertising with retail competition

This work deals with the cooperative advertising in a manufacturer retailers supply chain. It considers the manufacturer as the Stackelberg leader and the retailers as the followers playing a Nash game with each other. Using differential game theory it obtains a time consistent feedback Stackelberg equilibrium for the optimal advertising strategies and payoffs for a situation where retail advertising is subsidised and where it is not subsidised. The work shows that while the manufacturer's advertising effort reduces with subsidy, the retailers' advertising efforts and product awareness increase. These consequently lead to increase in all the players' payoffs. While a fair player would increase his advertising effort with increasing payoff, the others reduce their efforts. Further a retailer's advertising effort should be subsidised only if the rate of increase of the manufacturer's payoff through that retailer's margin to the manufacturer is twice greater than the rate of increase of that retailer's payoff.

Feedback Stackelberg--Nash Equilibria in Mixed Leadership Games with an Application to Cooperative Advertising

In this paper we characterize the feedback equilibrium of a general infinite-horizon Stackelberg--Nash differential game where the roles of the players are mixed. By mixed we mean that one player i...

A mathematical model of the effect of subsidy transfer in cooperative advertising using differential game theory

This work deals with subsidy transfer from a manufacturer to a retailer through the distributor in cooperative advertising. While the retailer engages in local advertising, the manufacturer indirectly participates in retail advertising using advertising subsidy which is given to the distributor, who in turn transfers it to the retailer. The manufacturer is the Stackelberg game leader; the distributor is the first follower, while the retailer is the last follower. The work employs differential game in modelling the effect of subsidy on the individual and channel payoffs; and models the awareness share dynamics using Sethi’s sales-advertising model. It obtains Stackelberg equilibriums characterising four-game scenario: no subsidy from neither the manufacturer nor the distributor; withholding of manufacturer’s subsidy by the distributor; provision of subsidy by the distributor in the absence of the manufacturer’s participation; and the participation of both the manufacturer and distributor in retail advertising. It shows that in the absence of subsidy from the manufacturer, the distributor should intervene by providing subsidy to the retailer. However, if this is impossible, he should avoid withholding the subsidy meant for retail advertising. The players’ payoffs as well as the channel payoff are worst with non-participation of both the manufacturer and the distributor, and best with transfer of subsidy.

Optimal cooperative advertising and ordering policies for a two-echelon supply chain

Abstract This paper considers a two-echelon supply chain consisting one manufacturer and multiple retailers whose demands are under uncertainty. The retailers order the same product from the manufacturer, while the demands are affected by the manufacturer’s brand adverting and the retailers’ local advertising strategies. For this setting, the cooperative issues in advertising are studied among the supply chain members. Two practical problems are investigated via the cooperative game approach, where the coalition’s characteristic values are indicated by the associated optimal expected profits. We analyze a mixed manufacturer-retailers advertising cooperation problem, in which the manufacturer acts as a leader and plays the Stackelberg game with the retailer coalition. We obtain some interesting managerial insights from the analysis and show that the core of each game is nonempty. To guarantee the stabilities of the proposed games, two easy-to-implement allocation policies of the expected total profits are provided, for which the earnings assigned to the manufacturer and the retailers are reasonably fair.

Coordination through cooperative advertising in a two-period supply chain with retail competition

PurposeMost firms in the fashion industry frequently design and promote new products, which leads to a two-period phenomenon in product sales. This study aims to examine the optimal advertising efforts of each channel member and the subsidy strategies of the manufacturer with retail competition in a two-period supply chain.Design/methodology/approachBy utilizing the game theory, this study developed a cooperative advertising model that considers the element of retailer competition in a two-period supply chain.FindingsThe main results of this study are as follows. An increase in the subsidy rate of one retailer’s advertising cost will lead to a decrease in the share of the other. When a manufacturer’s marginal profit from one retailer is considerably larger than that from the other, the manufacturer will share more advertising cost with the former. This study demonstrates that a bilateral participation contract can achieve supply chain coordination and increases the likelihood of retailers to participate in this contract when competition effect is small.Research limitations/implicationsFirst, product price is not a decision variable in this model. This concern can be studied in future work. Second, the one-manufacturer and two-retailer supply chain can be expanded to competitive manufacturers.Practical implicationsThis study provides some decision references for the manufacturer and retailer on advertising strategies. The manufacturer can also gain insights into cooperative advertising strategy when facing a competitive retail environment.Originality/valueMost previous studies related to cooperative advertising focused on a single-period supply chain. This study investigates cooperative advertising strategy with retail competition in two-period sales and explores the potential coordinating power of a bilateral participation contract.