Why the Generalized Bass Model leads to odd optimal advertising policies

Gila E. Fruchter and Christophe Van den Bulte

International Journal of Research in Marketing, 2011, vol. 28, issue 3, 218-230

Abstract: We show that the optimal advertising strategy under the Generalized Bass Model (GBM) involves beginning at an extremely low level (the lower the better) and then increasing spending throughout the planning period. This strategy remains optimal in the presence of decreasing prices that affect both margins and diffusion speed. We provide a simple explanation for why this happens. We further show that the intuitively appealing patterns of continuous decrease or increase-then-decrease (both with an uptick towards the end) identified in earlier research are also possible as optimal dynamic advertising paths under the GBM structure, but only if the advertising at launch is constrained to be higher than a particular threshold, which we identify. The constraint necessary to generate intuitively appealing strategies lowers overall profits. Therefore, the GBM generates advertising policy recommendations that most marketers would deem odd. This casts doubt on the value of the GBM for normative purposes. Other existing diffusion models are preferred when seeking normative guidance on optimal dynamic advertising policies for new products subject to word of mouth.

Keywords: Diffusion models; New products; Advertising; Price; Optimal control; Variational approach (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ijrema:v:28:y:2011:i:3:p:218-230

DOI: 10.1016/j.ijresmar.2011.03.005

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