Coordination in Multibrand, Multimedia Advertising: Is It Always a Good Thing?

Abstract

The growing online retail market has led to the prevalence of multichannel retailing. Meanwhile, retailers are increasingly combining multichannel retailing with a multibranding strategy. Although this can further increase the retailer’s sales, it brings new advertising challenges. Multibrand, multichannel retailers usually launch advertising campaigns for different brands on multiple media. Thus, their advertising efforts fall into a set of brand-media units. Each unit’s advertising can affect the sales of all brands on all channels. To maximize the advertising returns, a retailer needs to coordinate the advertising expenditures on different units. We develop a stochastic differential equation model that helps the retailer estimate the impact of multimedia advertising on the sales of different brands on different channels. Afterward, we formulate the advertising optimization problems under four coordination strategies: noncoordination, brand coordination, media coordination, and global coordination. By solving the problem for each strategy, the retailers can obtain the optimal expenditure for each unit under that strategy. Finally, we compare the retailer’s profits under four strategies. Interestingly, we find that brand or media coordination may result in a profit lower than noncoordination. Our findings provide insights regarding the selection of coordination strategies for multibrand, multichannel retailers with multimedia advertising campaigns.