Building Brand Awareness in Dynamic Oligopoly Markets

Management Science, Vol. 54, No. 1, pp. 129-138, January 2008

22 Pages Posted: 6 Feb 2008 Last revised: 8 May 2014

See all articles by Prasad A. Naik

Prasad A. Naik

University of California, Davis

Ashutosh Prasad

University of California, Riverside (UCR)

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: January 1, 2008

Abstract

Companies spend hundreds of millions of dollars annually on advertising to build and maintain awareness for their brands in competitive markets. However, awareness formation models in the marketing literature ignore the role of competition. Consequently, we lack both the empirical knowledge and normative understanding of building brand awareness in dynamic oligopoly markets. To address this gap, we propose an N-brand awareness formation model, design an extended Kalman filter to estimate the proposed model using market data for five car brands over time, and derive the optimal closed-loop Nash equilibrium strategies for every brand. The empirical results furnish strong support for the proposed model in terms of both goodness-of-fit in the estimation sample and cross-validation in the out-of-sample data. In addition, the estimation method offers managers a systematic way to estimate ad effectiveness and brands as well as competitors' brands. Finally, the normative analysis reveals an inverse allocation principle that suggests - contrary to the proportional-to-sales or competitive parity heuristics - that large (small) brands should invest in advertising proportionally less (more) than small (large) brands.

Keywords: marketing, competitive strategy, advertising, media, Kalman filter, dynamic games, differential games, Nash equilibrium, Optimal control, Sethi model, Feedback Nash, competative advertising model, car companies data from Italy

JEL Classification: M31, M37, C61, C73, M00, C7, M3, C72

Suggested Citation

Naik, Prasad A. and Prasad, Ashutosh and Sethi, Suresh, Building Brand Awareness in Dynamic Oligopoly Markets (January 1, 2008). Management Science, Vol. 54, No. 1, pp. 129-138, January 2008, Available at SSRN: https://ssrn.com/abstract=1089823

Prasad A. Naik

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Ashutosh Prasad

University of California, Riverside (UCR)

900 University Avenue
Riverside, CA 92521
United States

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

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