scholarly journals A Theoretical Analysis of the Pricing and Advertising Strategies with Lévy-Walking Consumers

2021 ◽  
Vol 16 (6) ◽  
pp. 2129-2150
Author(s):  
Wei Wang ◽  
Gang Li

The pervasive adoption of mobile devices and proximity technologies enables firms to trace consumers’ trajectories and locations. This connects firms’ marketing and operations strategies more tightly with consumer mobility. In this paper, we propose a novel analytical model to examine the economic effects of consumer mobility on pricing and advertising strategies by incorporating consumers’ Lévy-walking behavior into advertising economics models. We ascertain the convergent effect of consumer mobility, i.e., consumers’ convergence to a firm leads to higher product price and advertising level. Meanwhile, it improves social welfare by increasing firm profit and consumer surplus. More interestingly, we find that consumers’ average movement distance (AMD) has opposing influences in pricing and advertising strategies. Specifically, longer AMD strengthens the convergent effect on advertising strategy but weakens that on pricing strategy. Finally, we also conduct a numerical analysis to uncover the impacts of the presence of proximity technologies on advertising outcomes. The results of this paper provide advisable guidance to firms on how to craft and adjust pricing and advertising strategies in accordance to consumer mobility. Moreover, the results present insights on welfare implications of informative advertising from the perspective of consumer mobility.

2020 ◽  
Author(s):  
Pedro M. Gardete ◽  
Liang Guo

Consumers can decide whether to acquire more information about their valuations prior to purchase. In this paper, we examine pricing and advertising strategies when consumers can engage in prepurchase information acquisition. We show that consumer information acquisition can increase valuation heterogeneity and undermine a firm’s ability to extract consumer surplus. As a result, interestingly, a higher product quality can exert a nonmonotonic impact on equilibrium information acquisition, hurt firm profitability, and lead to lower consumer surplus. We also demonstrate that prepurchase information acquisition can be an endogenous mechanism to enable credible advertising in a cheap-talk setting. We show that quality claims in advertisements can be informative even when the firm can freely misrepresent its advertising message. Informative advertising can arise because a higher perceived quality can not only increase consumers’ expected value, but it also induces more information acquisition and thus hurts the firm’s ability to extract consumer surplus. This novel explanation for the credibility of cheap-talk advertising is distinguished from those identified in the literature (e.g., matching between firm types and heterogenous consumers, restrictive communication on multidimensional attributes). Moreover, we show that a higher quality can soften competition by inducing more information acquisition, thus benefiting the rival firm’s profitability. This paper was accepted by Matthew Shum, marketing.


2019 ◽  
Vol 57 (1) ◽  
pp. 78-99 ◽  
Author(s):  
Xi Li ◽  
Krista J. Li ◽  
Xin (Shane) Wang

Behavior-based pricing (BBP) refers to the practice in which firms collect consumers’ purchase history data, recognize repeat and new consumers from the data, and offer them different prices. This is a prevalent practice for firms and a worldwide concern for consumers. Extant research has examined BBP under the assumption that consumers observe firms’ practice of BBP. However, consumers do not know that specific firms are doing this and are often unaware of how firms collect and use their data. In this article, the authors examine (1) how firms make BBP decisions when consumers do not observe whether firms perform BBP and (2) how the transparency of firms’ BBP practice affects firms and consumers. They find that when consumers do not observe firms’ practice of BBP and the cost of implementing BBP is low, a firm indeed practices BBP, even though BBP is a dominated strategy when consumers observe it. When the cost is moderate, the firm does not use BBP; however, it must distort its first-period price downward to signal and convince consumers of its choice. A high cost of implementing BBP serves as a commitment device that the firm will forfeit BBP, thereby improving firm profit. By comparing regimes in which consumers do and do not observe a firm’s practice of BBP, the authors find that transparency of BBP increases firm profit but decreases consumer surplus and social welfare. Therefore, requiring firms to disclose collection and usage of consumer data could hurt consumers and lead to unintended consequences.


2020 ◽  
Author(s):  
Jianqiang Zhang ◽  
Krista J. Li

Consumers experience a sense of loss when a product’s quality does not match their expectations. To alleviate consumer loss aversion (CLA), firms can disclose information to reduce consumers’ uncertainty about product quality and the resulting psychological loss. In this paper, we investigate the implications of CLA on firm profit, consumer surplus, and social welfare when firms endogenously make quality disclosure decisions. We find that CLA leads symmetric firms to disclose quality more often. Given that CLA weakly reduces consumers’ utility from buying a product and quality disclosure is costly, intuition suggests that CLA is detrimental to firms. We find that this intuition is true only in a monopoly. Surprisingly, CLA makes both firms in a competition better off. Moreover, CLA increases firms’ profit when they invest in quality disclosure instead of money-back guarantees to respond to CLA. We also find that CLA decreases consumer surplus and social welfare. Therefore, educating consumers to improve decision-making skills by deliberating on future outcomes and emotions can benefit firms at the cost of consumers and society. When firms disclose quality sequentially, CLA can discourage the follower from disclosing quality. A strong level of CLA increases the leader’s profit over the follower’s, thereby encouraging firms to be the first mover in quality disclosure. This paper was accepted by Juanjuan Zhang, marketing.


2006 ◽  
Vol 73 (2) ◽  
pp. 244-256 ◽  
Author(s):  
Willard C Losinger

The goal of this study was to measure the economic impacts of reduced milk production associated with papillomatous digital dermatitis (PDD) in dairy cows in the USA, and of specific risk factors for PDD, in 1996. The method applied was an economic-welfare analysis of producer and consumer surplus, with the GUM Workbench used to analyse uncertainties in the measurements. Reduced milk production associated with PDD was found to reduce consumer surplus by $750 million±$580 million, and to increase the economic surplus of producers by $560 million±$470 million, with a net economic loss of $190 million±$130 million. An examination of the economic effects of specific epidemiologic risk factors for PDD showed that having dairy cows that were not born on the operation had important economic consequences associated with the disease, as did the type of land to which dairy cows had access during the winter months and the type of flooring on which cows walked. Washing hoof-trimming equipment between cows was an important biosecurity measure that was associated with reduced PDD. The epidemiologic model used also implicated hoof trimmers who trimmed cattle hooves on other operations as having an important economic impact associated with this disease, although this finding may have been erroneous.


2021 ◽  
Author(s):  
Ali Eren Ozcan

Millennial generation travellers have different behaviors towards advertisements. The purpose of this project is to focus on answering the thesis question: do image-based advertisements including human figure gain more attraction than image-based advertisements that includes graphical, colorful content? For this research, we will create a startup focused on serving millennial travellers. Then, we will conduct a comparison between classic, combined, and graphic advertising styles, using differently created images. The goal of this comparative study is to understand the most effective advertising strategy for a startup geared toward millennial travellers. We tested these advertising strategies on millennial travellers visiting Toronto or currently living in Toronto. Our hypothesis was that millennial travellers will be more interested in an image-based advertisement including humans or human face within travel and tourism advertisements. The results showed that millennial travellers are more interested in an image-based advertisement including humans or human face.


Kybernetes ◽  
2019 ◽  
Vol 48 (6) ◽  
pp. 1175-1194 ◽  
Author(s):  
Qingyun Xu ◽  
Bing Xu ◽  
Qiushi Bo ◽  
Yi He

Purpose Most 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/approach By utilizing the game theory, this study developed a cooperative advertising model that considers the element of retailer competition in a two-period supply chain. Findings The 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/implications First, 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 implications This 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/value Most 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.


Author(s):  
Varinder Singh ◽  
Sanjay Taneja ◽  
Varinderjeet Singh ◽  
Azad Singh ◽  
Harmesh Lal Paul

Online advertising and marketing promote the different types of products through various kinds of advertising modes to customers. Online advertising is promotional messages that show up on the monitors of online laptops, desktops, tablets, televisions, and smart phones. The main objective of the study is to analyze the online advertising and impact comparison of online advertising strategy which is adopted by Indian and Australian e-commerce companies. To achieve the objectives of this study, the authors take the sample of 5 Indian and 5 Australian e-commerce companies. This study also found that the Indian and Australian e-commerce companies are inter-connected. Online advertising in India has been flowering and also increasing because of 4G connections, which are good for the future of online marketing. This chapter explains comparisons of Indian and Australian e-commerce companies and also focuses on the top 10 platforms to increase sales and customer attraction through advertising. The future of online advertising is brilliant and unlimited.


2002 ◽  
Vol 34 (3) ◽  
pp. 513-530 ◽  
Author(s):  
Kenneth H. Mathews

Economic effects for three scenarios of antimicrobial drug use in livestock production—a no-ban scenario and two levels of bans—are examined through cost minimization and a partial equilibrium analysis. Results indicate that regulating antimicrobial drug use in livestock production would increase per-unit costs of producers previously using drugs and reduce beef supplies in the short run, reducing consumer surplus. Producers not previously using drugs would benefit from short-run price increases.


Author(s):  
S. Rozumei ◽  
I. Nikolaienko ◽  
A. Doliuk

Modern advertisingof consumer goods is developing at a rapid pace, providing ample opportunity to support for launching thousands of new items into the market. Manufacturers make the signifcant investments in various channels of communication of goods for communication with consumers, so a properly designed advertising strategy and its implementation in business is an indisputable step to achieve success of product’s realization on market. However, there is no unifed approach to the strategic planning of effective advertising support for new product, it remains is open to both academics and practitioners, and needs further development. The paper deals with the general defnitions of scientific concepts: "strategy" and "advertising strategy". The main stages of creating an advertising strategy to achieve the necessary communication effect and to obtain a positive consumer’s response are formed. Given the high level of competition in the consumer market, an analysis of market factors influencing this process is one of the frst stages of developing an advertising strategy. The existing classifcation was analyzed and the modern approach to the distribution of these factors was determined. The second step is choosing the purpose and strategic goals for building an effective advertising strategy. Starting from goals and consumer interests, there are many types of advertising strategies in the advertising market. Was examined the classifcation of advertising strategies and proposed to expand them. Depending on the components of the promotion, it is suggested to divide them into product's and image's. According to this classifcation, was analyzed using of advertising strategies by modern enterprises in 2019. Was determined that a well-formed advertising strategy of the enterprise will allow to expand the target audience when launching a new product on the market. The next important step in developing an advertising strategy is the media planning and budgeting. Was investigated the level of investments into different channels of communication, based on the data of the Ukrainian Advertising Association. Was determined that television is the most effective and expensive media channel. At the same time, the best in the terms of growth of investment relative to previous years is digital channel. Particular should be attentioned the stage of advertising creative making and the choice of the communication platform, which is the largest in period of formation of advertising strategy. The manufacturer needs to investigate and evaluate the buyer's response to the promotional product at all stages of a likely purchase. Was determined that for the correct reading of the idea of advertising, the optimal number of major messages in it should be no more than fve. Has been researched that the effectiveness of the advertising appeal is determined by the observance of psychological neutrality in relation to the whole audience involved in one way or another in the advertising campaign. When the advertising product is ready, advertising can be launched into media space. Choosing effective media channels is tailored to the needs of your target audience. The next step is following an analysis of economic efciency and effectiveness of psychological impact of advertasing strategy. According to the results of this analysis, the stages of developing a new product advertising strategy are adjusted. Key words: advertising strategy, new product, advertising, media planning, budgeting of advertising, digital, media space, effectiveness of advertising.


2018 ◽  
Vol 8 (1) ◽  
pp. 01-07
Author(s):  
Deniz Yesim Talug

Although the word globalisation gives the impression as a unified whole, serious cultural differences from country to country could not be ignored. To point out, there is a homogeneous world culture in today’s conditions that may not be very accurate. .Cultural differences are especially more important for brands placing international ads. For example, white is known to be associated with death in Asia, whereas it is associated with health and cleanliness in Europe. Therefore, the success of the ad is dependent on the appropriate message according to the country where the ad is published. Global advertising concept, which gained importance with the globalisation, loses the distinction of being the current ad types for businesses operating in the international arena today. As a result, advertising has entered the glocal concept. Glocalisation is derived from a combination of words, global (global) and local (local). This paper examines globalisation, cultural concepts, global and local advertising by investigating the phenomenon with the Coca-Cola brand. Keywords: Culture, advertising, strategy, global, local, glocal.


Sign in / Sign up

Export Citation Format

Share Document