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Why the Generalized Bass Model leads to odd optimal advertising policies

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  • Fruchter, Gila E.
  • Van den Bulte, Christophe

Abstract

We show that the optimal advertising strategy under the Generalized Bass Model (GBM) involves beginning at an extremely low level (the lower the better) and then increasing spending throughout the planning period. This strategy remains optimal in the presence of decreasing prices that affect both margins and diffusion speed. We provide a simple explanation for why this happens. We further show that the intuitively appealing patterns of continuous decrease or increase-then-decrease (both with an uptick towards the end) identified in earlier research are also possible as optimal dynamic advertising paths under the GBM structure, but only if the advertising at launch is constrained to be higher than a particular threshold, which we identify. The constraint necessary to generate intuitively appealing strategies lowers overall profits. Therefore, the GBM generates advertising policy recommendations that most marketers would deem odd. This casts doubt on the value of the GBM for normative purposes. Other existing diffusion models are preferred when seeking normative guidance on optimal dynamic advertising policies for new products subject to word of mouth.

Suggested Citation

  • Fruchter, Gila E. & Van den Bulte, Christophe, 2011. "Why the Generalized Bass Model leads to odd optimal advertising policies," International Journal of Research in Marketing, Elsevier, vol. 28(3), pages 218-230.
  • Handle: RePEc:eee:ijrema:v:28:y:2011:i:3:p:218-230
    DOI: 10.1016/j.ijresmar.2011.03.005
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    4. T. Marshalkina V. & Т. Маршалкина В., 2015. "Модели Прогнозирования Спроса На Инновационную Продукцию // Models For Innovative Products Demand," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, issue 6, pages 171-178.
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    13. Abedi, Vahideh Sadat, 2019. "Compartmental diffusion modeling: Describing customer heterogeneity & communication network to support decisions for new product introductions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 536(C).
    14. Vahideh Sadat Abedi & Oded Berman & Dmitry Krass, 2014. "Supporting New Product or Service Introductions: Location, Marketing, and Word of Mouth," Operations Research, INFORMS, vol. 62(5), pages 994-1013, October.
    15. S. Buxton & Kostas Nikolopoulos & M. Khammash & P. Stern, 2015. "Modelling and Forecasting Branded and Generic Pharmaceutical Life Cycles: Assessment of the Number of Dispensed Units," Working Papers 15004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
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