This paper presents findings from a census of more than 79,000 stock-keeping units (SKUs) in 37 consumer packaged goods categories totaling $55 billion in annual revenue. It shows that, in 86 percent of product categories, the relationship between market share and retail distribution is increasing and convex at the SKU level. The degree of convexity is greater in categories with higher revenues and more concentration in market shares. The relationship is also typically convex within leading brands’ SKU portfolios, showing that the “double jeopardy” phenomenon of low share and distribution not only affects small brands competing against market leaders, it also affects low-share SKUs within a category leader's product line. Holdout evidence shows that the distribution/share relationship within a brand's portfolio of existing SKUs usually holds for new SKUs as well. We explain how knowledge of the distribution/share relationship can help to improve a brand's go-to-market decisions for new SKUs.
{"title":"Distribution and Market Share","authors":"Kenneth C. Wilbur, P. Farris","doi":"10.2139/ssrn.1175869","DOIUrl":"https://doi.org/10.2139/ssrn.1175869","url":null,"abstract":"This paper presents findings from a census of more than 79,000 stock-keeping units (SKUs) in 37 consumer packaged goods categories totaling $55 billion in annual revenue. It shows that, in 86 percent of product categories, the relationship between market share and retail distribution is increasing and convex at the SKU level. The degree of convexity is greater in categories with higher revenues and more concentration in market shares. The relationship is also typically convex within leading brands’ SKU portfolios, showing that the “double jeopardy” phenomenon of low share and distribution not only affects small brands competing against market leaders, it also affects low-share SKUs within a category leader's product line. Holdout evidence shows that the distribution/share relationship within a brand's portfolio of existing SKUs usually holds for new SKUs as well. We explain how knowledge of the distribution/share relationship can help to improve a brand's go-to-market decisions for new SKUs.","PeriodicalId":418789,"journal":{"name":"Qnt Mkt: Marketing Mix Decisions (Topic)","volume":"61 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131614837","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We introduce new revelation mechanisms for simultaneous common agency games which, although they do not always permit a complete equilibrium characterization, do facilitate the characterization of the equilibrium outcomes that are typically of interest in applications. We then show how these mechanisms can be used in applications such as menu auctions, competition in nonlinear tariffs, and moral hazard settings. Lastly, we show how one can enrich the revelation mechanisms, albeit at a cost of an increase in complexity, to characterize all possible equilibrium outcomes, including those sustained by non-Markov strategies and/or mixed-strategy profiles. (JEL C72, D82, D86)
{"title":"Truthful Revelation Mechanisms for Simultaneous Common Agency Games","authors":"A. Pavan, G. Calzolari","doi":"10.1257/MIC.2.2.132","DOIUrl":"https://doi.org/10.1257/MIC.2.2.132","url":null,"abstract":"We introduce new revelation mechanisms for simultaneous common agency games which, although they do not always permit a complete equilibrium characterization, do facilitate the characterization of the equilibrium outcomes that are typically of interest in applications. We then show how these mechanisms can be used in applications such as menu auctions, competition in nonlinear tariffs, and moral hazard settings. Lastly, we show how one can enrich the revelation mechanisms, albeit at a cost of an increase in complexity, to characterize all possible equilibrium outcomes, including those sustained by non-Markov strategies and/or mixed-strategy profiles. (JEL C72, D82, D86)","PeriodicalId":418789,"journal":{"name":"Qnt Mkt: Marketing Mix Decisions (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116563421","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic efficiency can be achieved at the same time.
{"title":"A Retail Benchmarking Approach to Efficient Two-Way Access Pricing","authors":"Doh-Shin Jeon, Sjaak Hurkens","doi":"10.2139/ssrn.1023884","DOIUrl":"https://doi.org/10.2139/ssrn.1023884","url":null,"abstract":"We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic efficiency can be achieved at the same time.","PeriodicalId":418789,"journal":{"name":"Qnt Mkt: Marketing Mix Decisions (Topic)","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131720075","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The fact that organizations find it hard to change in response to shocks in the environment is a crucial feature of the economy. Yet we know little about why it is so difficult for organizations to adjust, and where these limitations come from. In an effort to discover some of these reasons we ground ourselves in the context of price adjustment, and present a qualitative analysis of an intensive ethnographic field study of the pricing practices at a one-billion dollar Midwestern industrial manufacturing firm and its customers. We go into depth on a specific episode, a price cut, which most vividly exemplifies the themes that emerged from our data. In the specific situation, market forces clearly dictate that the firm should cut prices, and everyone in the firm agrees with this assessment, suggesting a fairly straightforward price adjustment decision. Yet when we look deeper, and dissect how the firm implemented the price cut, we uncover a rich tapestry of frictions hidden within the organization. At their core, these frictions relate to how managers, in the context of an organization, attempt to apply the fundamental elements of economic theory. Essentially they face a series of constraints that make sense in the context of an organization trying to make these adjustments, but constraints that are rarely articulated or incorporated into economic understanding of price adjustment. We discover that the largest barriers to price adjustment are related to disputes arising from collisions between "partial models" used by different organizational participants as they confront fundamental economic issues. Often, these issues have not been settled and exist in a tenuous truce within the organization – and adjustment requires the organization to deal with them in order to react to these changes.
{"title":"The Anatomy of a Price Cut: Discovering Organizational Sources of the Costs of Price Adjustment","authors":"Mark J. Zbaracki, M. Bergen, Daniel Levy","doi":"10.2139/ssrn.925834","DOIUrl":"https://doi.org/10.2139/ssrn.925834","url":null,"abstract":"The fact that organizations find it hard to change in response to shocks in the environment is a crucial feature of the economy. Yet we know little about why it is so difficult for organizations to adjust, and where these limitations come from. In an effort to discover some of these reasons we ground ourselves in the context of price adjustment, and present a qualitative analysis of an intensive ethnographic field study of the pricing practices at a one-billion dollar Midwestern industrial manufacturing firm and its customers. We go into depth on a specific episode, a price cut, which most vividly exemplifies the themes that emerged from our data. In the specific situation, market forces clearly dictate that the firm should cut prices, and everyone in the firm agrees with this assessment, suggesting a fairly straightforward price adjustment decision. Yet when we look deeper, and dissect how the firm implemented the price cut, we uncover a rich tapestry of frictions hidden within the organization. At their core, these frictions relate to how managers, in the context of an organization, attempt to apply the fundamental elements of economic theory. Essentially they face a series of constraints that make sense in the context of an organization trying to make these adjustments, but constraints that are rarely articulated or incorporated into economic understanding of price adjustment. We discover that the largest barriers to price adjustment are related to disputes arising from collisions between \"partial models\" used by different organizational participants as they confront fundamental economic issues. Often, these issues have not been settled and exist in a tenuous truce within the organization – and adjustment requires the organization to deal with them in order to react to these changes.","PeriodicalId":418789,"journal":{"name":"Qnt Mkt: Marketing Mix Decisions (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127460312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Frank M. Bass (deceased), A. Krishnamoorthy, A. Prasad, S. Sethi
To increase the sales of their products through advertising, firms must integrate their brand-advertising strategy for capturing market share from competitors and their generic-advertising strategy for increasing primary demand for the category. This paper examines whether, when, and how much brand advertising versus generic advertising should be done. Using differential game theory, optimal advertising decisions are obtained for a dynamic duopoly with symmetric or asymmetric competitors. We show how advertising depends on the cost and effectiveness of each type of advertising for each firm, the allocation of market expansion benefits, and the profit margins determined endogenously from price competition. We find that generic advertising is proportionally more important in the short term and that there are free-riding effects leading to suboptimal industry expenditure on generic advertising that worsen as firms become more symmetric. Due to free-riding by the weaker firm, its instantaneous profit and market share can actually be higher. The effectiveness of generic advertising and the allocation of its benefits, however, have little effect on the long-run market shares, which are determined by brand-advertising effectiveness. Extensions of the model show that market potential saturation leads to a decline in generic advertising over time.
{"title":"Generic and Brand Advertising Strategies in a Dynamic Duopoly","authors":"Frank M. Bass (deceased), A. Krishnamoorthy, A. Prasad, S. Sethi","doi":"10.1287/MKSC.1050.0119","DOIUrl":"https://doi.org/10.1287/MKSC.1050.0119","url":null,"abstract":"To increase the sales of their products through advertising, firms must integrate their brand-advertising strategy for capturing market share from competitors and their generic-advertising strategy for increasing primary demand for the category. This paper examines whether, when, and how much brand advertising versus generic advertising should be done. Using differential game theory, optimal advertising decisions are obtained for a dynamic duopoly with symmetric or asymmetric competitors. We show how advertising depends on the cost and effectiveness of each type of advertising for each firm, the allocation of market expansion benefits, and the profit margins determined endogenously from price competition. We find that generic advertising is proportionally more important in the short term and that there are free-riding effects leading to suboptimal industry expenditure on generic advertising that worsen as firms become more symmetric. Due to free-riding by the weaker firm, its instantaneous profit and market share can actually be higher. The effectiveness of generic advertising and the allocation of its benefits, however, have little effect on the long-run market shares, which are determined by brand-advertising effectiveness. Extensions of the model show that market potential saturation leads to a decline in generic advertising over time.","PeriodicalId":418789,"journal":{"name":"Qnt Mkt: Marketing Mix Decisions (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114609011","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper presents a review of recent developments that have taken place in the area of dynamic optimal control models in advertising subsequent to the comprehensive survey of the literature by Sethi in 1977. The basic problem underlying these models is that of determining optimal advertising expenditures and possibly other variables of interest over time for a firm or a group of competing firms under consideration. This optimization is done subject to some dynamics that define how these variables translate into sales and in turn, into profits. The purpose of this update is twofold. On the one hand, new contributions in the areas already treated in the earlier survey are reviewed. On the other hand, new trends in the advertising literature since 1977, such as quality as an additional marketing instrument, cumulative sales models, pulsing advertising, and advertising as a part of corporate models of the firm, are discussed. The models covered in this update are organized under six headings: models with capital stocks generated by advertising, price, and quality, sales-advertising response models, cumulative sales models for durable goods, models with more than one state variables in the advertising process, models incorporating interaction with other functional areas, and competitive models. The discussion involves specifications, methods used, results, empirical validation, if any, and their economic significance. The survey concludes with suggestions for extensions and future directions of research.
{"title":"Dynamic Optimal Control Models in Advertising: Recent Developments","authors":"G. Feichtinger, R. Hartl, S. Sethi","doi":"10.1287/MNSC.40.2.195","DOIUrl":"https://doi.org/10.1287/MNSC.40.2.195","url":null,"abstract":"This paper presents a review of recent developments that have taken place in the area of dynamic optimal control models in advertising subsequent to the comprehensive survey of the literature by Sethi in 1977. The basic problem underlying these models is that of determining optimal advertising expenditures and possibly other variables of interest over time for a firm or a group of competing firms under consideration. This optimization is done subject to some dynamics that define how these variables translate into sales and in turn, into profits. The purpose of this update is twofold. On the one hand, new contributions in the areas already treated in the earlier survey are reviewed. On the other hand, new trends in the advertising literature since 1977, such as quality as an additional marketing instrument, cumulative sales models, pulsing advertising, and advertising as a part of corporate models of the firm, are discussed. The models covered in this update are organized under six headings: models with capital stocks generated by advertising, price, and quality, sales-advertising response models, cumulative sales models for durable goods, models with more than one state variables in the advertising process, models incorporating interaction with other functional areas, and competitive models. The discussion involves specifications, methods used, results, empirical validation, if any, and their economic significance. The survey concludes with suggestions for extensions and future directions of research.","PeriodicalId":418789,"journal":{"name":"Qnt Mkt: Marketing Mix Decisions (Topic)","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1994-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124011233","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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