Faculty Publications (FBIT)

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Recent Submissions

Now showing 1 - 10 of 10
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    Cooperative advertising in competing supply chains and the long-term effects of retail advertising
    (2021-09-03) Karray, Salma; Martin-Herran, Guiomar; Sigue, Simon Pierre
    The profitability of cooperative advertising (CA) programs is analyzed in a supply chain where competing manufacturers sell their products through competing retailers. We study a two-period game-theoretic model that accounts for positive and negative long-term effects of retail advertising on consumer preferences. We obtain closed-form equilibria in two particular cases where either stores or products are perfectly differentiated. For the general case where both products and stores can be substitutable, we develop a numerical algorithm to find the equilibrium. We compare the equilibria obtained in games where CA is offered and where it is not. The results show that the long-term effects of retail advertising and the levels of substitutability between products and retailers all play a key role in assessing the profitability of CA programs. CA only benefits manufacturers when store and product competition are both low, or retailers are highly differentiated. However, in most cases, retailers do not find such programs profitable except when product substitutability levels are high while store competition is low. Finally, CA can only be win-win arrangements for manufacturers and retailers when the level of store differentiation is very high, the products are moderately substitutable, and retail advertising has a substantial positive long-term impact.
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    Informational and/or Transactional Websites: Strategic Choices in a Distribution Channel
    (Elsevier, 2017) Karray, Salma; Sigue, Simon Pierre
    While most businesses have faced the decision of whether to operate an informational and/or a transactional website, the literature on website selection in marketing channels remains very sparse. This paper proposes an analytical framework that compares scenarios where a manufacturer uses either an informational, a transactional, or both transactional and informational website in a distribution channel formed by one manufacturer and one retailer. We find that the selection of the optimal website depends on the online market base of the product, the effectiveness of the manufacturer-controlled online communications, and the cross-price effect between online and offline channels. For both the manufacturer and retailer, informational websites are preferable when the online market base is small. With larger online markets, the manufacturer may prefer either informational and transactional websites or exclusively informational websites, while the retailer is always better off with an exclusively informational website. Theoretical and managerial implications of these findings are discussed.
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    Modeling reward expiry for loyalty programs in a competitive market
    (2017-08-10) Bazargan, Amirhossein; Karray, Salma; Zolfaghari, Saeed
    This paper investigates reward expiry for loyalty programs. It provides insights into the profitability of setting reward expiry for competing firms and identifies conditions under which such a policy would be beneficial. We develop and solve a game-theoretic model that reflects consumer behavior in choosing products and redeeming rewards. Applying a new iterative algorithm, we get the Nash equilibrium outputs for three scenarios (games): (1) neither firm sets an expiry date, (2) both firms set an expiry date, and (3) only one firm sets an expiry date. Comparison of the firms' profits across scenarios shows that the firms' prices and profits are affected by the loyalty program of the competing firm and by consumers' valuation of rewards and of time to rewards. In particular, a firm offering rewards that do not expire should increase its price if the competing firm changes its reward policy from no expiry to expiry, even when the expiry period is quite long. Finally, when customers highly value rewards and time, reward expiry is a dominant strategy for both firms. This means that firms would benefit from setting expiry on their loyalty rewards only if their customers highly value both rewards and time. Alternatively, both firms' rewards should not expire if consumers have low valuations of both rewards and time.
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    ‘Buy n times, get one free’ loyalty cards: Are they profitable for competing firms? A game theoretic analysis
    (2017-08-10) Bazargan, Amirhossein; Karray, Salma; Zolfaghari, Saeed
    This paper evaluates whether firms offering loyalty programs (LPs) should choose a restricted redemption policy by imposing a specific number of purchases before customers can redeem their points. Such restriction is commonly offered in form of ‘buy n times, get one free’ loyalty cards. We develop a multinomial logit model where consumer's utility depends on the value of the product and of the rewards. Using an iterative algorithm, we numerically solve a Nash game for two firms offering loyalty programs. Optimal strategies and profits are obtained for three different scenarios (games): (1) both firms do not restrict redemption; (2) both firms restrict redemption; and (3) only one firm restricts redemption while the other firm does not. Our main findings indicate that each firm's optimal strategies are significantly affected by whether the competitor decides to restrict or not to restrict redemption. In particular, a firm that restricts reward redemption should offer a higher price if its competitor also restricts redemption. Further, the dominant strategy of the game depends on customers’ valuations of time and rewards. For example, when customers highly value time but do not highly value rewards, the dominant strategy for both firms is not to restrict redemption. Alternatively, firms can face a Prisoner dilemma situation leading to unrestricted redemption policy for intermediate levels of customer valuation of both time and rewards.
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    Assessing the profitability of cooperative advertising programs in competing channels
    (Elsevier, 2017-02) Karray, Salma; Martin-Herran, Guiomar; Zaccour, Georges
    A large literature studied the profitability (effectiveness) of cooperative advertising programs (CAPs) in distribution channels, but very few studies modeled pricing decisions in competitive markets under different channel structures. This paper fills this gap. We propose a game-theoretic model where two competing channels make pricing and promotional decisions. The efectiveness of CAPs is studied under different channel structures to examine how vertical and horizontal externalities can impact the effectiveness of CAPs. Each channel structure can be integrated or decentralized to account for different vertical interaction effects, resulting in three cases: (i) both channels are decentralized (DD), (ii) both are integrated (II), and (iii) a hybrid structure where one channel is decentralized and is competing with an integrated channel (DI). We solve six non-cooperative games: (1) both manufacturers offer CAPs under DD, (2) only one manufacturer offers a CAP under DD, (3) both manufacturers do not offer CAPs under DD, (4) the decentralized manufacturer offers a CAP under DI, (5) the decentralized manufacturer does not offer a CAP under DI, and (6) the channel problem under II. Then, we obtain and compare equilibrium profits and strategies across these games. The main results indicate that the profitability of CAPs depends on the levels of price competition and of the advertising effects. Also, while manufacturers benefit from CAPs, retailers may not find such programs profitable. Finally, the decentralized or integrated structure of the competing channel significantly impacts the effects of cooperative advertising. For example, CAPs can effectively coordinate the DD channel and even help it exceed profits earned by a vertically integrated channel. However, in the DI case, although CAPs can improve total channel profits, they do not fully coordinate the channel.
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    Cooperative advertising programs: are accrual constraints necessary?
    (Wiley, 2017-06) Punya, Chattergee; Salma, Karray; Simon Pierre, Sigue
    This paper investigates how the use of an accrual constraint in a cooperative advertising program affects channel members’ profits in a bilateral monopoly, as well as their pricing and advertising decisions. The main findings indicate that, compared to unconstrained cooperative advertising programs, when an accrual constraint is used and the manufacturer’s contribution to the retailer’s advertising costs exceeds the accrued cooperative advertising budget, the retailer reduces both her retail price and advertising efforts to the level where cooperative advertising is not offered; while the manufacturer also reduces his wholesale price and advertising efforts, but this time, the wholesale price remains higher than when there is no cooperative advertising. These strategic moves translate to less (more) profits for the manufacturer (retailer). The use of an accrual constraint is counterproductive for the manufacturer as the retailer uses the accrued advertising fund as a side payment rather than a direct incentive to invest more in advertising. The manufacturer and retailer are better off when unconstrained cooperative advertising programs are supplemented with other incentives, including side payments and advertising support services.
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    Should Companies Jointly Promote their Complementary Products when they Compete in other Product Categories?
    (ScienceDirect, 2016-12) Karray, Salma; Sigue, Simon-Pierre
    Joint promotions, whereby companies pool marketing resources to promote their brands, are increasingly used to reduce marketing costs and develop common business opportunities, but formal knowledge about how they should be effectively implemented remains sparse. This paper investigates whether firms should jointly promote their complementary products when they also offer substitute products in another category. It also studies whether companies should partner with allies that can or cannot leverage on joint promotion to create spillover in their product portfolios. Our main findings are as follows. A company’s decision to enter or not to enter into a joint promotion depends on the presence and nature (positive or negative) of promotion spillover in its own product portfolio and the effect of joint promotion on each complementary product demand. Particularly, in the absence of spillover effect, joint promotion may not be mutually beneficial if its direct effects on the two complementary products are asymmetric. On the other hand, depending on its direct effects on the complementary products, joint promotion could be a profit-enhancing activity for the two firms even when it negatively affects the demand of their substitute products by intensifying price competition. Finally, we discuss the implications of branding strategies on the effectiveness of joint promotion. The results in this paper are useful for firms offering products in different categories where joint promotional spillover can occur.
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    A game-theoretic model for co-promotions: Choosing a complementary versus an independent product ally
    (Elsevier, 2015-07) Karray, Salma; Sigué, Simon Pierre
    This paper studies the optimal choice of promotional partners in a three-firm market where two firms sell complementary products and a third firm sells an independent product. Game-theoretic models are developed to investigate the following scenarios: no promotional partnership, partnership between the two complementary products, partnership between a complementary product and the independent product, and partnership between the three products. Equilibrium Nash solutions are obtained and conditions under which each of the four scenarios above can be implemented are identified. Results show that these conditions depend on various parameters, mainly the degree of product complementarity, the effectiveness of individual promotion, the effectiveness of joint promotion, and the base demand for each product. Commonly, a partnership between a complementary product and the independent product is optimal when the price effect of the complementary product is large, while the partnership between the two complementary products is more appealing when the effect of individual promotion is large enough. When feasible, a promotional partnership between the three products is preferred, except in some specified conditions.
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    Cooperative advertising for competing manufacturers: The impact of long-term promotional effects
    (ScienceDirect, 2017-02) Karray, Salma; Martin-Herran, Guiomar; Sigue, Simon-Pierre
    The effectiveness of cooperative advertising programs is studied in a market where two competing manufacturers deal with an exclusive retailer and two products. Two two-stage game theoretic models are developed to analyze the long-term effects of retailer's promotions, which can be positive or negative, on the effectiveness of cooperative advertising. Closed-form equilibrium solutions are obtained and compared. We find that the level of product substitutability and the sign and magnitude of the long-term effects of retailer's promotions on sales determine whether cooperative advertising should be offered and accepted by the manufacturers and retailer. In particular, depending on the level of product substitutability, cooperative advertising can benefit both the manufacturers and retailer even when retailer's promotions negatively affect future sales. Conversely, it may not be in the interest of the manufacturers to offer cooperative advertising when the products are fairly undifferentiated regardless of the nature of the long-term effects of promotions. Finally, the manufacturers and retailer may refuse to respectively offer or participate in cooperative advertising programs that enhance total channel profits.
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    The Effectiveness of Movie Trailer Advertising
    (2015-09-24) Karray, Salma; Debernitz, Lidia
    Prior to a movie release in theatres, trailer advertising provides valuable information that can help viewers and investors form expectations about the movie's future success. While previous research has looked at the financial implications of movie advertising budgets, the effects of trailers' creative characteristics on abnormal returns have not yet been investigated. Using a sample of movie trailers, results from our event study and cross-sectional analysis show that the appeal of the movie plot revealed in the trailer, the number of scene cuts and the inclusion of violent, sexual, or humorous scenes influence the movie's abnormal returns. However, the use of special effects in the movie trailer does not impact investors. Results also suggest that investors react more strongly to first than to follow-up trailers released for the movie, and that early release of the first positively impacts the movie's returns.