This paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream. The interdependency of cost and demand on cumulative production makes the problem inherently dynamic. Cost is assumed to be declining with cumulative production (learning curve effect), while demand is a function of price and cumulative sales, representing word-of-mouth and saturation effects. The paper addresses this problem in a general framework that includes several previous results as special cases, and provides new insights in other situations. While the learning curve and word-of-mouth effect cause prices to be lower than the price that maximizes immediate revenues, the saturation factor has the opposite effect. The price path over time is affected by these factors and the interest rate. We characterize the price path under several different situations and interpret the results for policy guidelines.
This paper examines the effects of advertising on the sales growth of new, infrequently purchased products. It is assumed that producer originated advertising serves to inform innovators of the existence and value of the new product while word-of-mouth communication by previous adopters affects imitators. Such a diffusion process is modeled and tested for the case of telephonic banking. It is shown that advertising accelerates the diffusion process of the new product. The implications for a firm introducing a new product and wishing to maximize its discounted profits over the product's life cycle are discussed. In particular, it is demonstrated that the optimal advertising policy is to advertise heavily when the product is introduced and to reduce the level of advertising as sales increase and the product moves through its life cycle. Evidence that such a strategy is commonly practiced by firms is cited.
White bird of paradise tree (Strelitzia augusta Thunb.), originally from South Africa, is a tender perennial cultivated as an ornamental plant and is used in gardens in Italy. During February of 2004, a new blight disease was noticed on potted S. augusta at different ages (6 months to 4 years) in several commercial nurseries of eastern Sicily. Field inspections revealed disease incidences as high as 40%. Initial symptoms were small, water-soaked leaf spots that expanded throughout the veins in dark brown streaks. Stem cross sections revealed browning of the vascular tissues, which might involve the entire stem. In some cases, the necrosis extended to the apical bud, causing death of the plant. Thirty explants from infected tissues were washed in sterile water and plated on plate count agar (PCA) from which two types of bacterial colonies were consistently isolated. Pathogenicity tests were performed on S. augusta plants. Twenty-four plants were inoculated (12 per bacterial isolate) using two different procedures: spray with a bacterial suspension (10 6 CFU/ml) and wounding with an infected needle on the midribs. The same number of noninoculated plants was used as controls. All plants were maintained at 24 to 26°C with 95 to 100% relative humidity until symptoms occurred 4 days later. Just one of the two tested bacterial types was pathogenic. The symptoms were similar to those previously observed in the field. No symptoms were observed in the plants spray inoculated with the bacterial suspension, proving that the bacteria were unable to infect in the absence of a wound. The controls showed no symptoms. Koch's postulates were fulfilled by the reisolation of the infective strain which was sent to the CBS (Centraalbu-reau voor Schimmelcultures) and identified as Pseudomonas syringae pv. Lachrymans/pisi using the Biolog MicroLog3 4.01C program (Biolog Inc., Hayward, CA). Further pathogenicity tests have been carried out on zucchini and pea pods to characterize the pathovar using 48SR1 of P. syringae pv. syringae and B4 of P. syringae pv. pisi as reference strains. Necrotic, sunken, water-soaked spots surrounded by a chlorotic halo, reported in the literature as typical symptoms of P. syringae pv. lachry-mans (Smith & Bryan) Young, Dye & Wilkie (1), were observed on zucchini when inoculated with our strain. Our P. syringae strain did not cause the typical symptoms of P. syringae pv. pisi on inoculated pea pods. The results of the pathogenicity tests and the inability of the P. syringae strain isolated from S. augusta to utilize homoserine, used to discriminate pv. pisi from other pathovars of P. syringae, allowed us to identify the strain as P. syringae pv. lachrymans. Low temperature damage and late transplant may have promoted the spread of the disease in the nurseries. Under these conditions, the economic importance of this disease for the crop can be considered high. To our knowledge, this is first report of P. syringae pv. lachrymans on S. augusta. Reference: (1) K. Pohronezny et al. Plant Dis. Rep. 62:306, 1978.
This paper investigates the effect of product substitutability on Nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer, which may be either a franchised outlet or a factory store. Static linear demand and cost functions are assumed, and a number of rules about players' expectations of competitors' behavior are examined. It is found that for most specifications product substitutability does influence the equilibrium distribution structure. For low degrees of substitutability, each manufacturer will distribute its product through a company store; for more highly competitive goods, manufacturers will be more likely to use a decentralized distribution system.
A channel of distribution consists of different channel members each having his own decision variables. However, each channel member's decisions do affect the other channel members' profits and, as a consequence, actions. A lack of coordination of these decisions can lead to undesirable consequences. For example, in the simple manufacturer-retailer-consumer channel, uncoordinated and independent channel members' decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated. In addition, the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer. This paper explores the problems inherent in channel coordination. We address the following questions. —What is the effect of channel coordination? —What causes a lack of coordination in the channel? —How difficult is it to achieve channel coordination? —What mechanisms exist which can achieve channel coordination? —What are the strengths and weaknesses of these mechanism? —What is the role of nonprice variables (e.g., manufacturer advertising, retailer shelf-space) in coordination? —Does the lack of coordination affect normative implications from in-store experimentation? —Can quantity discounts be a coordination mechanism? —Are some marketing practices actually disguised quantity discounts? We review the literature and present a simple formulation illustrating the roots of the coordination problem. We then derive the form of the quantity discount schedule that results in optimum channel profits.
A multinomial logit model of brand choice, calibrated on 32 weeks of purchases of regular ground coffee by 100 households, shows high statistical signficance for the explanatory variables of brand loyalty, size loyalty, presence/absence of store promotion, regular shelf price and promotional price cut. The model is parsimonious in that the coefficients of these variables are modeled to be the same for all coffee brand-sizes. The calibrated model predicts remarkably well the share of purchases by brand-size in a hold-out sample of 100 households over the 32-week calibration period and a subsequent 20-week forecast period. The success of the model is attributed in part to the level of detail and completeness of the household panel data employed, which has been collected through optical scanning of the Universal Product Code in supermarkets. Three short-term market response measures are calculated from the model: regular (depromoted) price elasticity of share, percent increase in share for a promotion with a median price cut, and promotional price cut elasticity of share. Response varies across brand-sizes in a systematic way with large share brand-sizes showing less response in percentage terms but greater in absolute terms. On the basis of the model a quantitative picture emerges of groups of loyal customers who are relatively insensitive to marketing actions and a pool of switchers who are quite sensitive.
Due to the risk inherent in dependence on foreign oil, there is a social benefit in aiding the introduction of alternative energy sources into the market place. The Federal government has initiated a number of programs, including price subsidies, to help accelerate the market diffusion of new, alternative energy systems. We develop a model to investigate analytically the effects of a price subsidy over time on the rate of market diffusion. The model considers word-of-mouth effects and learning curve cost declines. Under a set of conditions that a new technology should be expected to meet before commercialization, the optimal subsidy level is shown to be nonincreasing in time. The related market price is shown to be closely related to the diffusion effect. If there is no such effect, the price to the customer is constant. If there is positive diffusion effect, price increases in time, while if market saturation causes demand to decline over time price decreases in time.
The purpose of this note is to supplement some recent articles which discuss correlations between two grouped random variables. In this paper we give a more parsimonious and less computationally complex method of assessing the effect of grouping while also giving some insights into the best ways to group continuous variables. Implications of these results for certain marketing studies are given.
A decision support system for planning marketing strategies and allocating resources for a multi-store retailer is described. This decision support system combines well-known model building and analysis methodology, sophisticated computer software, and attention to management's implementation needs in order to apply management science thinking to messy, high level strategy and forecasting problems. The system consists of a planning model, national campaign evaluation system, experimental analysis system, and an ongoing interactive data base and reporting system. The planning model was first implemented with subjective judgment as input. The rest of the system was then refined to aid management in improving their subjective judgments, and for tracking and control. The marketing mix for total and business entity (groups of departments) sales is presently being planned with the support of this system. Profit improvements have been identified and implemented.