The optimal advertising strategy with differentiated targeted effect consumers

Xiuxian Li (), Pengwen Hou () and Shuhua Zhang ()
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Xiuxian Li: Tianjin University of Commerce
Pengwen Hou: Tianjin University of Finance and Economics
Shuhua Zhang: Tianjin University of Finance and Economics

Annals of Operations Research, 2023, vol. 324, issue 1, No 42, 1295-1336

Abstract: Abstract In this paper, we investigate the optimal advertising strategy for two heterogeneous retailers. To propagandize their products, they have to take the traditional advertising or the targeted one. Then a question appears, what are competitive retailers’ optimal equilibrium advertising strategy when they face with differentiated targeted effect consumers? For that, we design four mutually exclusive models: the traditional advertising for two retailers (the ‘nn’-model); the targeted advertising for one retailer and the traditional advertising for another (the ‘tn’ and the ‘nt’ models); the targeted advertising for both retailers (the ‘tt’-model). First, two retailers engage in Nash game to carry out price competitive under the above four models; then they participate in Stackelberg game to carry out advertising strategy competitive under two different game sequences: Retailer 1 and Retailer 2 as the decision leader respectively. By comparison and analysis, some interesting findings are obtained: when consumers’ expected targeted effect is positive, both retailers benefit from the targeted advertising, and the weaker retailer benefits more than the stronger; the stronger retailer is better off when he is the decision leader than when his competitor is; when consumers’ expected targeted effect is negative and near to zero, its optimal for the dominant retailer to take the traditional advertising and the weaker retailer to take the targeted one; two players get win-win when consumers’ expected targeted effect is low or high enough, and they may fall into lose-lose when consumers’ expected targeted effect is moderate; consumers and social get higher (lower) welfare under ‘tt’-model than under ‘nn’-model when consumers’ expected targeted effect is positive (negative).

Keywords: OR in marketing; Targeted advertising; Targeted effect; Advertising competition; Game theory (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-022-04769-2

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