Advertising mode selection strategy under manufacturer encroachment

Abstract

This paper analyzes the manufacturer and retailer’s advertising and pricing strategies within three typical modes of advertising under manufacturer encroachment and derives the optimal advertising mode. We find that if the supply chain members choose to advertise, compared to the scenario without manufacturer encroachment, the manufacturer gets more profit attributed to the expanded demand and advertising efforts, but the retailer gets more profit only if the advertising effectiveness is high. Then, we summarize that when the unit advertising cost is low, the supply chain members do not advertise under manufacturer encroachment. Thirdly, we find that retailer advertising cannot be the optimal advertising mode for the manufacturer. When the unit advertising cost is high and the substitutability level is low, joint advertising is optimal; otherwise, manufacturer advertising is optimal. Finally, we delve into the cost-sharing joint advertising strategy of the supply chain members, and find that within the scenario of cost-sharing joint advertising, the manufacturer can get more profit at the retailer’s expense compared to other advertising modes.