An Analysis of Optimal Advertising Under Uncertainty

Article Abstract:

We examine the firm's optimal advertising behavior under conditions of uncertainty. For the static one-period model, we show that the firm's attitude toward risk may be responsible for the potential divergence between advertising decisions under uncertainty and those under deterministic conditions. For the dynamic multi-period model, the ultimate impact of uncertainty on advertising is further complicated when the sales response function contains an unknown parameter, and the firm wishes to gain more information about it through experimentation. We demonstrate that whether it is optimal for the firm to experiment at an advertising rate higher, equal to, or lower than the myopic (one-period) level would depend on the specification of the response function. Finally, we offer some empirical evidence for our assumption of a quadratic sales response function, using time-series data of twelve major brands of cigarettes. (Reprinted by Permission of Publisher.)

Uncertainty, Decision theory, Decision Making

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Optimal Long-Run Equilibrium Advertising Level for the Blatterg-Jeuland Model

Article Abstract:

A dynamic optimization problem based on the Blattberg-Jeuland advertising model is formulated and solved. Also examined is the behavior of the optimal long-run equilibrium level of advertising with respect to changes in some parameters. The equilibrium optimal level of advertising for the B-J model is a nonmonotone function of the rate of decay parameter. This phenomenon is analogous to a sink effect. It is also shown that the equilibrium optiomal level of advertising is a decreasing function of the insertion cost and discount rate parameters. A graph shows equilibrium ad levels versus decay rates.

Management science, Modeling, Data modeling software, Dynamic Systems

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A Note on Optimal and Near Optimal Price and Advertising Strategies

Article Abstract:

Welam in a 1982 paper, 'Optimal and Near Optimal Price and Advertising Strategies,' proposes a model similar to that analyzed by Gould in his work on optimal advertising strategies. Their approaches and models are compared. Other related papers are suggested in the hope of encouraging synthesis of marketing and economics models of optimal advertising.

Policy

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