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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


Book publishers: Hardcover editions Paperbacks

Hollywood studios: Cinemas Retails


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


What sequential distribution can add???????

Attract new customers’ preferences (price, style)Extend product’s life cycleImprove firms revenues

Different campaigns for different stages


Advertising before product release


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


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


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


Dynamic Ad Effectiveness Research focuses on advertising strategies in

sequential distributions of new products in order to capture its effectiveness


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


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


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


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


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


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


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.


• 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


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


THANKS !!!

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