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Cooperative Advertising Models in Supply Chain Management: A Review

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Vertical Cooperative Advertising in Supply Chain Management

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

Abstract

This paper reviews articles on cooperative advertising, a topic which has gained substantial interest in recent years. Thereby, we first briefly distinguish five different definitions of cooperative advertising which can be found in operations research literature. After that, we concentrate on vertical cooperative advertising, which is the most common object of investigation. It is understood as a financial agreement where a manufacturer offers to pay a certain share of his retailer’s advertising expenditures. In total, we identified 58 scientific papers considering mathematical modeling of vertical cooperative advertising. These articles are then analyzed with regard to their general model setting (e.g., the underlying supply chain structure and design of the cooperative advertising program). After that, we explain the different demand and cost functions that are employed, whereupon we distinguish between static and dynamic models. The last dimension of our review is dedicated to the game-theoretic concepts which are mostly used to reflect different forms of distribution of power within the channel.

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Notes

  1. 1.

    For a general overview of this field of research and methods in use, we refer the reader to Cachon and Netessine (2004): Game theory and Wang and Parlar (1989):Static game theory models.

  2. 2.

    Cf. Leng and Parlar (2005):Game theoretic applications, p. 189.

  3. 3.

    See Taboubi and Zaccour (2005): Coordination mechanisms in marketing channels, chap. 3.3 & 4.2, Leng and Parlar (2005): Game theoretic applications, chap. 6.4, and Xie and Zhang (2011): Models in cooperative advertising.

  4. 4.

    Cf. Bergen and John (1997): Cooperative advertising, p. 357.

  5. 5.

    Related studies are Bhattacharyya and Lafontaine (1995): Double-sided moral hazard, Dant and Berger (1996): Modelling cooperative advertising, Desai (1997): Advertising fee, Hempelmann (2006): Optimal franchise contracts, Michael (2002): Can a franchise chain coordinate?, Rao and Srinivasan (2001): Advertising payments, Sen (1995) Advertising fees, and Sigué and Chintagunta (2009) Advertising strategies.

  6. 6.

    Cf. Chakravarti and Janiszewski (2004): The influence of generic advertising, pp. 488 et seq.

  7. 7.

    See Alston et al. (2001): Beggar-thy-neighbor advertising, Bass et al. (2005): Generic and brand advertising strategies, Chakravarti and Janiszewski (2004): The influence of generic advertising, Crespi and James (2007): Bargaining rationale, Depken et al. (2002): Generic advertising, Kinnucan (1997): Middlemen behaviour and generic advertising, Krishnamurthy (2000): Relationship between generic and brand advertising, Krishnamurthy (2001): Effect of provision points, LeVay (1981): A theory of co-operative advertising, Lu et al. (2007): Generic advertising, Miles et al. (1997): Advertising budgeting practices, Simonin and Ruth (1998): Spillover effects of brand alliances, Varadarajan (1986): Horizontal cooperative sales promotion, and Ward and Dixon (1989): Fluid milk advertising.

  8. 8.

    Cf. Church and Ware (2000): Industrial organization, pp. 566 et seq. Studies referring to this definition are Amrouche et al. (2008): Pricing and advertising, Depken and Snow (2008): Strategic nature of advertising, Erickson (2009): An oligopoly model, Friedman (1983): Advertising, Karray and Martín-Herrán (2008): Relationship between advertising and pricing, Karray and Martín-Herrán (2009): Advertising and pricing competition, Ma and Ulph (2012): Advertising subsidy, Mariel and Sandonís (2004): A model of advertising, Piga (1998): Review of Industrial Organization, Slade (1995): Product rivalry, Viscolani (2012): Pure-strategy Nash equilibria, and Viscolani and Zaccour (2009): Advertising strategies.

  9. 9.

    This approach can be found in Buratto and Zaccour (2009): Coordination of advertising strategies, El Ouardighi et al. (2008): Operations and marketing management, Forbes (1986): Market structure and cooperative advertising, Jørgensen et al. (2001a): Stackelberg leadership, Jørgensen and Zaccour (2003a): Channel coordination, Jørgensen and Zaccour (2003b): A differential game, Karray (2011): Effectiveness of retail joint promotions, and Simbanegavi (2009): Informative advertising.

  10. 10.

    For a more elaborate discussion, we refer the interested reader to the books Crimmins (1970): Cooperative advertising, Crimmins (1984): Cooperative advertising, Hutchins (1953): Cooperative advertising, and Young and Greyser (1983): Managing cooperative advertising, which also comprise case studies as well as an overview of legal restrictions due to antitrust legislation like, especially, the Robinson-Patman Act (for legal aspects, see also Moran (1973): Cooperative advertising).

  11. 11.

    Cf. Sorenson (1970): Cooperative advertising, p. 18.

  12. 12.

    Cf. Young and Greyser (1983): Managing cooperative advertising, p. 4.

  13. 13.

    Cf. Crimmins (1970): Cooperative advertising, p. 21, and Crimmins (1984): Cooperative advertising, p. 2.

  14. 14.

    Cf. Hutchins (1953): Cooperative advertising, p. 7.

  15. 15.

    Cf. Herrington and Dempsey (2005): Current effects, p. 62, and Young and Greyser (1983): Managing cooperative advertising, pp. 29–37.

  16. 16.

    Cf. Somers et al. (1990): Cooperative advertising expenditures, p. 36.

  17. 17.

    Cf. Young and Greyser (1983): Managing cooperative advertising, p. 36.

  18. 18.

    Cf. Berger et al. (2006): Optimal cooperative advertising, p. 921.

  19. 19.

    Cf. Dant and Berger (1996): Modelling cooperative advertising, p. 1122.

  20. 20.

    Cf. Dutta et al. (1995): Cooperative advertising contracts, p. 16, and Nagler (2006): Cooperative advertising participation rates, p. 96.

  21. 21.

    See Berger (1972): Vertical cooperative advertising.

  22. 22.

    See Lei et al. (2009): Joint advertising channels and Xiao et al. (2010): Coordination of a supply chain.

  23. 23.

    See Chen (2011): Coordinating the ordering and advertising policies, He et al. (2011): Retail competition, Tsao and Sheen (2012): Promotion cost sharing, and Xiao et al. (2010): Coordination of a supply chain.

  24. 24.

    See Karray and Zaccour (2007): Effectiveness of coop advertising and Kim and Staelin (1999): Manufacturer allowances.

  25. 25.

    See Chen (2010): Manufacturer’s co-op advertising, Karray and Zaccour (2005): Advertising for national and store brands, and Karray and Zaccour (2006): Co-op advertising.

  26. 26.

    See Chung et al. (2011): Price markdown scheme.

  27. 27.

    See Berger and Magliozzi (1992): Optimal co-operative advertising and Kali (1998): Minimum advertised price.

  28. 28.

    See Berger (1972): Vertical cooperative advertising.

  29. 29.

    See Jørgensen et al. (2006): Incentives for retailer promotion.

  30. 30.

    See Kim and Staelin (1999): Manufacturer allowances.

  31. 31.

    See De Giovanni (2011a): Environmental collaboration.

  32. 32.

    Cf. Bergen and John (1997): Cooperative advertising, p. 360.

  33. 33.

    Cf. Young and Greyser (1983): Managing cooperative advertising, p. 33.

  34. 34.

    See Kunter (2012): Coordination via cost and revenue sharing, Zhang et al. (2013b): Supply chain coordination, and Zhang et al. (2013a): Cooperative advertising.

  35. 35.

    See Berger and Magliozzi (1992): Optimal co-operative advertising and Kali (1998): Minimum advertised price.

  36. 36.

    See Lei et al. (2009): Joint advertising channels.

  37. 37.

    See Xiao et al. (2010): Coordination of a supply chain.

  38. 38.

    We refer the reader to Hanssens et al. (2002): Market response models, chap. 3, for an extensive explanation on mathematical modeling of sales response.

  39. 39.

    Cf. Xie and Wei (2009): Coordinating advertising, p. 787.

  40. 40.

    See Aust and Buscher (2012): Vertical cooperative advertising, p. 474, Karray (2013): Periodicity of pricing and marketing efforts, p. 637, Kunter (2012): Coordination via cost and revenue sharing, p. 479, SeyedEsfahani et al. (2011): Vertical co-op advertising, p. 265, Yan (2010): Cooperative advertising, p. 512, and Zhang et al. (2013a): Cooperative advertising, p. 196.

  41. 41.

    Besides the two parameters k m and k r, which are also used in the following chapters, we omit distinguishing symbols for demand parameters. This section only serves the purpose of giving an overview of existing formulations of demand functions, which are not used further in the sequel. Hence, the meaning of a symbol may change from equation to equation and is indicated in each case when differing from the latter meaning.

  42. 42.

    Cf. Zhang and Xie (2012): Cooperative advertising with multiple retailers, p. 40.

  43. 43.

    Cf. Huang and Li (2001): Co-op advertising models, p. 530.

  44. 44.

    Cf. Ahmadi-Javid and Hoseinpour (2011): Coordinating cooperative advertising, p. 139.

  45. 45.

    Cf. Wang et al. (2011): Cooperative advertising models, p. 1055. The notation of indices j and 3 − j permits a general formulation of the demand functions of both retailers, which replaces a separate indication of each individual’s function. Thereby, index j denotes the retailer under consideration, while index 3 − j stands for his counterpart. This notation is also used in Chap. 5.

  46. 46.

    Cf. Ghadimi et al. (2013): Coordination of advertising, p. 5.

  47. 47.

    Cf. Karray and Zaccour (2007): Effectiveness of coop advertising, p. 155, and Zhang and Zhong (2011): Co-op advertising, p. 1457.

  48. 48.

    For a comprehensive comparison of price demand functions, we refer the reader to Lau and Lau (2003): Effects of a demand-curve’s shape.

  49. 49.

    Cf. SeyedEsfahani et al. (2011): Vertical co-op advertising, p. 265.

  50. 50.

    Cf. Huang et al. (2012): Developments in dynamic advertising research, p. 592.

  51. 51.

    See Nerlove and Arrow (1962): Optimal advertising policy.

  52. 52.

    Cf. Jørgensen et al. (2000): Dynamic cooperative advertising, p. 74.

  53. 53.

    See Jørgensen et al. (2001b): Cooperative advertising.

  54. 54.

    See Jørgensen et al. (2003): Retail promotions.

  55. 55.

    See De Giovanni and Roselli (2012): Drawbacks of a revenue-sharing contract.

  56. 56.

    See De Giovanni (2011b): Quality improvement vs. advertising support.

  57. 57.

    See Vidale and Wolfe (1957): Sales response to advertising and Sethi (1983): Deterministic and stochastic optimization.

  58. 58.

    Cf. He et al. (2009): Cooperative advertising and pricing, p. 81.

  59. 59.

    Cf. He et al. (2011): Retail competition, p. 12, and He et al. (2012): Co-op advertising, p. 77. Please note that He et al. (2011) use \(\kappa _{1} =\kappa _{2} =\kappa\) as well as \(\sigma _{1} =\sigma _{2} =\sigma\).

  60. 60.

    Cf. Huang et al. (2012): Developments in dynamic advertising research, p. 600, and Kimball (1957): Military operations research methods.

  61. 61.

    Cf. Chutani and Sethi (2012a): Optimal advertising and pricing, p. 619, as well as Sethi et al. (2008): Optimal advertising and pricing and Krishnamoorthy et al. (2010): Optimal pricing and advertising.

  62. 62.

    Cf. Chutani and Sethi (2012b): Cooperative advertising, p. 351, as well as Erickson (2009): An oligopoly model.

  63. 63.

    See Berger (1972): Vertical cooperative advertising and Berger (1973): Cooperative advertising.

  64. 64.

    Cf. Cachon and Netessine (2004): Game theory, p. 36, and Nagarajan and Sošić (2008): Game-theoretic analysis, p. 720.

  65. 65.

    See Shapley (1953): A value for n-person games.

  66. 66.

    See Marchi and Cohen (2009): Cooperative advertising. For further reading on biform-games, see Brandenburger and Stuart (2007): Biform games.

  67. 67.

    See Ghadimi et al. (2013): Coordination of advertising.

  68. 68.

    See Nash (1950b): Equilibrium points in n-person games and Nash (1951): Non-cooperative games.

  69. 69.

    See von Stackelberg (1934): Marktform und Gleichgewicht.

  70. 70.

    Cf. Achenbaum and Mitchell (1987): Pulling away from push marketing, p. 38, Buzzell et al. (1990): The costly bargain of trade promotion, p. 141, and Kumar (1996): The power of trust, pp. 92–94.

  71. 71.

    See Huang et al. (2002): Manufacturer-retailer supply chain, pp. 478 et seq.

  72. 72.

    See Huang and Li (2001): Co-op advertising models.

  73. 73.

    See Li et al. (2002): Cooperative advertising.

  74. 74.

    See Xie and Neyret (2009): Co-op advertising for the first static and Buratto et al. (2007): Advertising coordination games for the first dynamic approach.

  75. 75.

    See Karray (2013): Periodicity of pricing and marketing efforts.

  76. 76.

    See, e.g., Aust and Buscher (2012): Vertical cooperative advertising, p. 478, and SeyedEsfahani et al. (2011): Vertical co-op advertising, p. 267.

  77. 77.

    Cf. Buratto et al. (2007): Advertising coordination games, p. 315.

  78. 78.

    Cf. He et al. (2007): Stackelberg differential game models, p. 389.

  79. 79.

    See Ghadimi et al. (2013): Coordination of advertising as well as Cyert and DeGroot (1973): Cooperation and learning in a duopoly.

  80. 80.

    See, e.g., Huang and Li (2001): Co-op advertising models.

  81. 81.

    Cf. Yue et al. (2013): Pricing and advertisement, pp. 498 et seq.

  82. 82.

    Cf. Nash (1950a): Bargaining problem, p. 159.

  83. 83.

    Cf. Harsanyi and Selten (1972): Generalized Nash, p. 96, and Kalai (1977): Nonsymmetric Nash, pp. 130 et seq.

  84. 84.

    Cf. Eliashberg (1986): Arbitrating a dispute, p. 966.

  85. 85.

    Cf. Huang et al. (2002): Manufacturer-retailer supply chain, pp. 482–285, Li et al. (2002): Cooperative advertising, pp. 353 et seq., Yue et al. (2006): Coordination of cooperative advertising, pp. 77–82, and Aust and Buscher (2012): Vertical cooperative advertising, p. 477.

  86. 86.

    Cf. Wang et al. (2011): Cooperative advertising models, p. 1065.

  87. 87.

    We refer the reader to Nagarajan and Sošić (2008): Game-theoretic analysis for further reading.

  88. 88.

    See, e.g., Sadigh et al. (2012): Manufacturer-retailer supply chain coordination and Yu and Huang (2010): Nash game model for examples with respect to other topics.

  89. 89.

    Cf. Zhang et al. (2013a): Cooperative advertising, p. 196.

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Acknowledgements

A slightly modified version of this work is also published in Aust and Buscher (2014a): Cooperative advertising models in supply chain management: A review. European Journal of Operational Research, 234(1), 1–14.

http://dx.doi.org/10.1016/j.ejor.2013.08.010.

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Aust, G. (2015). Cooperative Advertising Models in Supply Chain Management: A Review. In: Vertical Cooperative Advertising in Supply Chain Management. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-319-11626-6_3

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