Advertisement

Dynamic Games and Applications

, Volume 7, Issue 1, pp 112–130 | Cite as

Cooperative Advertising with Accrual Rate in a Dynamic Supply Chain

  • Juan Zhang
  • Qinglong Gou
  • Susan Li
  • Zhimin Huang
Article

Abstract

We consider a supply chain in which a manufacturer stimulates his retailers investing more local advertising expenditures through a cooperative advertising program (Co-op). Co-op advertising programs usually involve two important contractual terms, a participation rate and an accrual rate. While previous literatures have discussed the participation rate excessively, they seldom study the role of the accrual rate in cooperative advertising. To investigate the impact of the accrual rate on cooperative advertising decisions, we develop a dynamic cooperative advertising model for a single manufacturer–single retailer supply chain that incorporates the participation rate and the accrual rate simultaneously. We derive the equilibrium co-op decisions of two channel members, including the manufacturer’s national advertising efforts and his participation rate, as well as the retailer’s local advertising expenditure. Our analysis of the equilibrium solutions shows that an increase in participation rate will not always increase the retailer’s advertising efforts because of the accrual rate. Also, both the manufacturer and retailer can benefit from a high accrual rate.

Keywords

Co-op advertising Differential game Supply chain management Decision analysis Dynamic marketing strategies 

Notes

Acknowledgments

This work was supported by the National Natural Science Foundation of China (Grant Nos. 70901068, 71271198), the Funds for International Cooperation and Exchange of the National Natural Science Foundation of China (Grant No.71110107024), Chinese Universities Scientific Fund and Fundamental Research Funds for the Central Universities (2014B14814). Qinglong Gou would also like to acknowledge the Science Fund for Creative Research Groups of the National Natural Science Foundation of China (Grant No. 71121061) for support of his research.

References

  1. 1.
    Aust G, Buscher U (2012) Vertical cooperative advertising and pricing decisions in a manufacturer–retailer supply chain: a game-theoretic approach. Eur J Oper Res 223(2):473–482MathSciNetCrossRefzbMATHGoogle Scholar
  2. 2.
    Aust G, Buscher U (2014) Cooperative advertising models in supply chain management: a review. Eur J Oper Res 234(1):1–14MathSciNetCrossRefzbMATHGoogle Scholar
  3. 3.
    Bass FM, Krishnamoorthy A, Prasad A, Sethi SP (2005) Generic and brand advertising strategies in a dynamic duopoly. Market Sci 24(4):556–568CrossRefGoogle Scholar
  4. 4.
    Berger PD (1973) Statistical decision analysis of co-op advertising ventures. J Oper Res Soc 24(2):207–216CrossRefGoogle Scholar
  5. 5.
    Chintagunta PK, Jain D (1992) A dynamic model of channel member strategies for marketing expenditures. Market Sci 11(2):168–188CrossRefGoogle Scholar
  6. 6.
    Crimmins EC (1980) Co-op advertising: a history of problems and promise. Advert Age, September 1, 1980, s1, s10, s11Google Scholar
  7. 7.
    Dant RP, Berger PD (1996) Modeling cooperative advertising decisions in franchising. J Oper Res Soc 47(9):1120–1136CrossRefGoogle Scholar
  8. 8.
    Dutta S, Bergen M, John G, Rao A (1995) Variations in the contractual terms of cooperative advertising contracts: an empirical investigation. Market Lett 6(1):15–22CrossRefGoogle Scholar
  9. 9.
    He X, Krishnamoorthy A, Prasad A, Sethi SP (2011) Retail competition and co-op advertising. Oper Res Lett 39(1):11–16MathSciNetCrossRefzbMATHGoogle Scholar
  10. 10.
    He X, Krishnamoorthy A, Prasad A, Sethi SP (2012) Co-op advertising in dynamic retail oligopolies. Decis Sci 43(1):73–106CrossRefGoogle Scholar
  11. 11.
    He X, Prasad A, Sethi SP (2009) Co-op advertising and pricing in a stochastic supply chain: feedback Stackelberg strategies. Prod Oper Manag 18(1):78–94Google Scholar
  12. 12.
    Huang ZM, Li SX (2001) Co-op advertising models in manufacturer-retailer supply chains: a game theory approach. Eur J Oper Res 135(3):527–544MathSciNetCrossRefzbMATHGoogle Scholar
  13. 13.
    Hutchins MS (1953) Cooper Advert. Roland Press, New YorkGoogle Scholar
  14. 14.
    Jørgensen S, Sigué SP, Zaccour G (2000) Dynamic co-op advertising in a channel. J Retail 76(1):71–92CrossRefGoogle Scholar
  15. 15.
    Jørgensen S, Taboubi S, Zaccour G (2001) Co-op advertising in a marketing channel. J Optim Theory Appl 110(1):145–158MathSciNetCrossRefzbMATHGoogle Scholar
  16. 16.
    Jørgensen S, Taboubi S, Zaccour G (2003) Retail promotions with negative brand image effects: Is cooperation possible? Eur J Oper Res 150(2):395–405MathSciNetCrossRefzbMATHGoogle Scholar
  17. 17.
    Jørgensen S, Zaccour G (2014) A survey of game-theoretic models of cooperative advertising. Eur J Oper Res 237(1):1–14MathSciNetCrossRefzbMATHGoogle Scholar
  18. 18.
    Karray S, Zaccour G (2005) A differential game of advertising for national brand and store brands. In: Haurie A, Zaccour G (eds) Dynamic games: theory and applications. Springer, Berlin, pp 213–229CrossRefGoogle Scholar
  19. 19.
    Karray S, Zaccour G (2007) Effectiveness of coop advertising programs in competitive distribution channels. Int Game Theory Rev 9(2):151–167MathSciNetCrossRefzbMATHGoogle Scholar
  20. 20.
    Kotler P, Pfoertsch W (2010) Ingredient branding: making the invisible visible. Springer, New YorkCrossRefGoogle Scholar
  21. 21.
    Li SX, Huang ZM, Zhu J, Chau PYK (2002) Co-op advertising, game theory and manufacturer–retailer supply chains. Omega 30(5):347–357CrossRefGoogle Scholar
  22. 22.
    Moorthy KS (1988) Product and price competition in a duopoly. Market Sci 7(2):141–168CrossRefGoogle Scholar
  23. 23.
    Nagler MG (2006) An exploratory analysis of the determinants of cooperative advertising participation rates. Market Lett 17(2):91–102CrossRefGoogle Scholar
  24. 24.
    Nerlove M, Arrow KJ (1962) Optimal advertising policy under dynamic conditions. Economica 29(14):129–142CrossRefGoogle Scholar
  25. 25.
    Prasad A, Sethi SP (2004) Competitive advertising under uncertainty: a stochastic differential game approach. J Optim Theory Appl 123(1):163–185MathSciNetCrossRefzbMATHGoogle Scholar
  26. 26.
    Sethi SP (1983) Deterministic and stochastic optimization of a dynamic advertising model. Optim Control Appl Methods 4(2):179–184MathSciNetCrossRefzbMATHGoogle Scholar
  27. 27.
    SeyedEsfahani MM, Biazaran M, Gharakhani M (2011) A game theoretic approach to coordinate pricing and vertical co-op advertising in manufacturer–retailer supply chains. Eur J Oper Res 211(2):263–273MathSciNetCrossRefzbMATHGoogle Scholar
  28. 28.
    Shugan SM (1985) Implicit understandings in channels of distribution. Manag Sci 31(4):435–460CrossRefGoogle Scholar
  29. 29.
    Sigué SP, Chintagunta P (2009) Advertising strategies in a franchise system. Eur J Oper Res 198(2):655–665MathSciNetCrossRefzbMATHGoogle Scholar
  30. 30.
    Szmerekovsky JG, Zhang J (2009) Pricing and two-tier advertising with on manufacturer and on retailer. Eur J Oper Res 192(3):904–917MathSciNetCrossRefzbMATHGoogle Scholar
  31. 31.
    Weng ZK (1995) Channel coordination and quantity discounts. Manag Sci 41(9):1509–1522CrossRefzbMATHGoogle Scholar
  32. 32.
    Xie JX, Neyret A (2009) Co-op advertising and pricing models in manufacturer–retailer supply chains. Comput Ind Eng 56(4):1375–1385CrossRefGoogle Scholar
  33. 33.
    Xie J, Wei JC (2009) Coordinating advertising and pricing in a manufacturer–retailer channel. Eur J Oper Res 197(2):785–791MathSciNetCrossRefzbMATHGoogle Scholar
  34. 34.
    Yue J, Austin J, Wang M, Huang ZM (2006) Coordination of co-op advertising in a two-level supply chain when OEM offers discount. Eur J Oper Res 168(1):65–86CrossRefzbMATHGoogle Scholar
  35. 35.
    Zhang J, Gou Q, Liang L, Huang Z (2013a) Supply chain coordination through cooperative advertising with reference price effect. Omega Int J Manag Sci 41(2):345–353CrossRefGoogle Scholar
  36. 36.
    Zhang J, Gou Q, Liang L, He X (2013b) Ingredient branding strategies in a dynamic supply chain: models and analysis. Int J Prod Res 51(23–24):6923–6949CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Juan Zhang
    • 1
  • Qinglong Gou
    • 2
    • 3
  • Susan Li
    • 4
  • Zhimin Huang
    • 4
  1. 1.Department of Marketing, Business SchoolHohai UniversityNanjingPeople’s Republic of China
  2. 2.School of ManagementUniversity of Science and Technology of ChinaHefeiPeople’s Republic of China
  3. 3.Naveen Jindal School of ManagementThe University of Texas at DallasRichardsonUSA
  4. 4.The Robert B. Willumstad School of BusinessAdelphi UniversityGarden CityUSA

Personalised recommendations