Shelf-Space Allocation and Advertising Decisions in the Marketing Channel: A Differential Game Approach

Abstract

This paper deals with the issue of shelf-space allocation and advertising decisions in marketing channels. We consider a network composed of a unique retailer offering the products of two competing manufacturers. The retailer controls the amount of shelf-space to allocate to both brands, while the manufacturers make advertising decisions in order to build their brand image (i.e. the goodwill stock). The demand for each brand is affected by its own goodwill level and the shelf-space allocated to the brand at retailer's store. The problem is formulated as a Stackelberg differential game played over an infinite horizon, with the manufacturers as leaders and the retailer as the follower. Stationary feedback equilibria are computed. Our main results indicate that the shelf-space allocated to each brand, manufacturers' advertising strategies at the equilibrium and channel members' value functions are affected by the goodwill levels of both products.

A dynamic model for advertising and pricing competition between national and store brands

“…We consider that at any instant in time, each channel member observes his goodwill stock and the other channel member's goodwill stock level (e.g., through market research studies). As in Roberts and Samuelson (1988) and Martín-Herrán and Taboubi (2005), we assume however that each channel member observes only the evolution over time of his goodwill dynamics but does not consider the evolution over time of the other player's goodwill stock because such information would be expensive to obtain or because he does not have such information. 5 We next solve the model and discuss the equilibrium strategies.…”

The Impact of Manufacturers' Wholesale Prices on a Retailer's Shelf‐Space and Pricing Decisions*

“…This literature has focused on mechanisms such as pricing, marketing expenditures, and profit sharing, which could coordinate the channel. Although this literature is abundant, it is only recently that a few studies have concentrated on the issue of shelf‐space allocation (Wang & Gerchak, 2001; Martín‐Herrán & Taboubi, 2005; Martín‐Herrán, Taboubi, & Zaccour, 2005).…”

“…Martín‐Herrán and Taboubi (2005) and Martín‐Herrán et al (2005) examined the issue of shelf‐space allocation in a dynamic game setting for a channel composed of two manufacturers and an exclusive retailer. In Martín‐Herrán and Taboubi (2005), the information structure is Markovian and the manufacturers are assumed to act myopically, while in Martín‐Herrán et al (2005), shelf‐space and advertising decisions are time‐dependent and the hypothesis of myopia is removed. In Martín‐Herrán and Taboubi (2005) and Martín‐Herrán et al (2005) the authors assume that the retail and wholesale prices are constant.…”

“…In Martín‐Herrán and Taboubi (2005), the information structure is Markovian and the manufacturers are assumed to act myopically, while in Martín‐Herrán et al (2005), shelf‐space and advertising decisions are time‐dependent and the hypothesis of myopia is removed. In Martín‐Herrán and Taboubi (2005) and Martín‐Herrán et al (2005) the authors assume that the retail and wholesale prices are constant. In this article, we consider that both prices are decisions to be optimized by the players.…”

Introduction of Store Brands Considering Product Cost and Shelf Space Opportunity Cost

“…In addition, the demand for each brand increases in its proportion of shelf space. The rationale is that if a product has more shelf space, the probability of being noticed, perceived, and selected by the consumer will increase (see [26][27][28][29]). Furthermore, many studies demonstrate that each brand's demand increases in the competing brand's price and decreases in its own price (see [12,18]).…”