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Dynamic Effects Of Advertising And Word Of Mouth In
Sequential Distribution Of New Products
Marketing Mix Seminar 2014By Federico Triolo
Marketing Mix Seminar: Federico Triolo
Sequential distributionMany industries release their products (usually
with short life) in sequential stagesThey also lunch different campaigns with a
communication mix
Word of mouth (WMO) advertising
Marketing Mix Seminar: Federico Triolo
Book publishers: Hardcover editions Paperbacks
Hollywood studios: Cinemas Retails
Marketing Mix Seminar: Federico Triolo
Motion pictures/movies context
Hollywood case: $ 70.8 million to produce a movie $ 35.9 million to market a movie $ 45.7 million to cinemas revenues
No breakeven point
Marketing Mix Seminar: Federico Triolo
What sequential distribution can add???????
Attract new customers’ preferences (price, style)Extend product’s life cycleImprove firms revenues
Different campaigns for different stages
Marketing Mix Seminar: Federico Triolo
Advertising before product release
Marketing Mix Seminar: Federico Triolo
Increases: By carryover/wear-inDecreases: By forgetting/wear-outDynamical linear model (DLM): was
proposed by the authors to link a products’ demand to its underlying goodwill stock. DLM links a movie’s revenue to its advertising and WOM through an aggregate response function
Ad Effectiveness
Marketing Mix Seminar: Federico Triolo
How can actually both advertising and WOM influence a product’s demand???
Theatre stage +$ in AD more effective (Wear-in&wom)Later stage -$ in AD more effective WOM
Marketing Mix Seminar: Federico Triolo
Literature- Sequential ditribution
This study focuses its attention on multistage diffusion of new products and advertising
Especially on two stages theaters and video because they generate more than 95% of the revenues within the field. Respectively 9.6 billion and 24.2 billion a year
Expenditure on advertising: Theaters ($3.8) and video ($1.1)
Uniform prices to highly differentiated films
Marketing Mix Seminar: Federico Triolo
Dynamic Ad Effectiveness Research focuses on advertising strategies in
sequential distributions of new products in order to capture its effectiveness
Marketing Mix Seminar: Federico Triolo
Dynamic WOM Effectiveness In addition to advertising, WOM plays a central
role for experience goods such as movies, whose qualities cannot be easily assumed before consumption
Internet communitiesDynamic and fast force, rather than static and
slow
Marketing Mix Seminar: Federico Triolo
Aggregate Demand and Goodwill Stock Goodwill basically drives the demand for the
movie
It decays over time both AD and WOM try to increase its value
Weekly revenue
Marketing Mix Seminar: Federico Triolo
Dynamic Advertising and WOM EffectivenessNow the analysis is focused on how the AD, and
then WOM, effectiveness vary over timeAD wear-out:1. Copy: E.g. audiences know about the actors, etc.2. Repetition: When viewers gain no novel informationAD wear-In:1. Firms rotates its ads2. Appealing customers’ feelings3. Consumer forgetting
Marketing Mix Seminar: Federico Triolo
Empirical study – Data360 movies of different genres: Action (12%), comedy (36%), dramas (24%) On average, the studios behind these study
spent $43 million on production and gained $51 Theatrical revenues
Marketing Mix Seminar: Federico Triolo
Parameter Estimates
Competitive Advertising induces a negative effect on demand
New theatrical and video releases generate a positive and significant lift on video demand
Theatrical advertising enhances positive effectiveness and leads to wear-in due to entertaining content of films (drama, story) and it boosts effectiveness of WOM
Elevate level of WOM can reduce its effectiveness
Marketing Mix Seminar: Federico Triolo
Although repeated advertising wears in at the theater stage, it wears out at the video stage (w1
(2)=1,023)WOM reduces its efficacy at the theater stage,
but not at the video stage consumers rely more on communities here than ads
Theater stage Video stage
Marketing Mix Seminar: Federico Triolo
Managerial implicationsThe applications of the proposed model based on the potential re-allocation of ad budgets. They allocate the theatrical budget first; then, given the predicted resulting theatrical demand, they allocate the video budget.
Marketing Mix Seminar: Federico Triolo
• The study shows that the ad-budget could be re-allocate in order to increase the total log-revenue by 1%-15%
• Movies with prestige and critics (69,2%) could collocate more budget at the first stage, rather other (29,4%) could allocate less than observed
Marketing Mix Seminar: Federico Triolo
Consistent Findings1. A large number of critics’ reviews prevent
forgetting because films attracting more critics’ reviews they enjoy public awareness, appeal and fascination
2. Advertisers for films that enjoy reduced forgetting and increased ad wear-in could consider allocating more ad budgets at the theater stage
3. Intuitively, films that enjoy greater cumulative theatrical revenues could allocate higher ad budgets at the video stage
Marketing Mix Seminar: Federico Triolo
THANKS !!!