On the impact of advertising initiatives in supply chains

Wenqing Zhang, Shanling Li, Dan Zhang, Wenhua Hou

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

Advertising plays an important role in affecting consumer demand. Socially responsible firms are expected to use advertising judiciously, limiting advertising of "bad" products. An example is the advertising initiative adopted by several major food manufacturers to limit the advertising of unhealthy food categories to children. Such initiatives are based on the belief that less advertising will lead to less consumption of these unhealthy food categories. However, food manufacturers usually distribute products to consumers through retailers whose advertising is not restricted by those initiative programs. In this paper, we examine the effectiveness of such advertising initiative in a leader-follower supply chain with one manufacturer and one retailer. We assume that both the manufacturer and the retailer can choose to participate in the advertising initiative by reducing their advertising levels. The problem is formulated as a Stackelberg game. We show that the effectiveness of the advertising initiative critically depends on the leader's participation in the initiative. If the leader is willing to reduce the advertising level below a threshold, the market coverage of the product can drop significantly. On the other hand, if only the follower participates in the initiative, the market coverage is likely to expand in the majority of cases. Managerial implications of this research are also discussed.

Original languageEnglish (US)
Pages (from-to)99-107
Number of pages9
JournalEuropean Journal of Operational Research
Volume234
Issue number1
DOIs
StatePublished - Apr 1 2014

Bibliographical note

Copyright:
Copyright 2014 Elsevier B.V., All rights reserved.

Keywords

  • Advertising
  • Corporate social responsibility
  • Pricing
  • Stackelberg game
  • Supply chain

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