Cooperative advertising with a strong retailer and a weak manufacturer: a closer look at the consumer electronics industry
by Gozem Guceri-Ucar; Stefan Koch
International Journal of Technology Marketing (IJTMKT), Vol. 9, No. 4, 2014

Abstract: Models of cooperative advertising analysed until recently have mainly revolved around two cases: 1) strong manufacturer, weak retailer; 2) strong manufacturer, equally strong retailer. These are not generalisable to market dynamics in all countries and all industries. Despite being understudied, a case that is growing in significance is that of weak manufacturers and strong retailers. In this study, we focus on a manufacturer that is excessively weak in comparison to the retailer. Such manufacturers are dominating the consumer electronics industry in developing countries where there is a need for low-priced products with acceptable quality. They partner with strong retailers, and invest heavily in cooperative advertising in order to communicate product related information to potential customers and generate sales. We aim to analyse the weak manufacturer-strong retailer setting with a game theoretic approach, focusing on the strategic impacts of retail channel marketing and co-op advertising sharing policy. Sequential and simultaneous-move game models are examined to determine the optimal co-op advertising strategies that maximise both players' profits. It is found that when the distribution of power between the retailer and the manufacturer is highly unbalanced, the only feasible non-cooperative game model is the leader-follower scheme in which the retailer decides both the channel marketing investment level and the co-op advertising sharing policy.

Online publication date: Fri, 31-Oct-2014

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