Periodic Advertising Pulsing in a Competitive Market

Authors:
Marshall Freimer;Dan Horsky
Affiliations:
William E. Simon Graduate School of Business Administration, University of Rochester, Rochester, New York 14627;William E. Simon Graduate School of Business Administration, University of Rochester, Rochester, New York 14627
Venue:
Marketing Science
Year:
2012

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Abstract

The question as to the optimality of advertising pulsing has attracted many researchers over the last half-century. In this paper we specify a market share model in which there are two advertising-setting firms as well as a no-purchase option. The framework is that of a first-order Markov process with three states. The objective of both firms is to maximize profits. We are able to demonstrate, for a diminishing returns advertising function, that the optimal advertising strategy is pulsing. The frequency of the advertising pulse is shown to depend on the magnitude of the market share retention rate (state dependence); the higher it is, the less frequent the advertising. We further find that the optimal advertising budgets do not remain the same when the frequency of pulsing changes. Finally, we show that it is optimal for both firms to advertise in phase.