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Optimal advertising strategies with age-structured goodwill

Abstract

The problem of a firm willing to optimally promote and sell a single product on the market is here undertaken. The awareness of such product is modeled by means of a Nerlove–Arrow goodwill as a state variable, differentiated jointly by means of time and of age of the segments in which the consumers are clustered. The problem falls into the class of infinite horizon optimal control problems of PDEs with age structure that have been studied in various papers either in cases when explicit solutions can be found or using Maximum Principle techniques. Here, assuming an infinite time horizon, we use some dynamic programming techniques in infinite dimension to characterize both the optimal advertising effort and the optimal goodwill path in the long run. An interesting feature of the optimal advertising effort is an anticipation effect with respect to the segments considered in the target market, due to time evolution of the segmentation. We analyze this effect in two different scenarios: in the first, the decision-maker can choose the advertising flow directed to different age segments at different times, while in the second she/he can only decide the activation level of an advertising medium with a given age-spectrum.

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Notes

  1. 1.

    Note that \(\partial J[u,g]/\partial u, \partial J[u,g]/\partial g\) are in fact the Frechét differential in \(L^2\) with respect to the \(u, g\) variables, respectively.

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Acknowledgments

We thanks both Anonymous Referees for their review: we highly appreciate the comments and suggestions, which significantly contributed to improving the quality of the paper.

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Correspondence to Luca Grosset.

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Faggian, S., Grosset, L. Optimal advertising strategies with age-structured goodwill. Math Meth Oper Res 78, 259–284 (2013). https://doi.org/10.1007/s00186-013-0443-8

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Keywords

  • Optimal advertising
  • Dynamic programming
  • Vintage capital