Research On Advertising Investment And Pricing Decision Of V Company Considering Manufacturer Encroachment And Advertising Spillover Effect

With the development of the diversification of social media and propaganda channels,the rising standard of living,the awakening of consumers’ self-awareness,the change in style and the increasing demand for self-expression,these factors are leading to a huge reshuffle in Chinese lingerie market.Lots of lingerie retailers with well-known brands at home and abroad are being challenged.In response to this challenge,lingerie retailers are actively transforming their brands and are investing in propaganda stimulating demands and gaining market share,which may cause spillover effect.In addition,lingerie retailers will not only be challenged by commercial competition from other companies,but also may face the possibility of channel encroachment by manufacturers who have the core materials and the ability to develop and innovate production technology.Thus,it is very important to help V Company,a famous lingerie retailer,gain a larger market share and obtain optimal profits by modelling which is considered with manufacturer’s channel encroachment and spillover effect on advertising investment,and making suggestions on advertising and pricing decisions.The research established a two-stage supply chain of one manufacturer and one lingerie retailer with famous brand which is mainly focus on.The decision sequence of Stackelberg game model is based on market leadership.Three different models are constructed for situations which include no spillover effect without encroachment,the one-way spillover effect with encroachment and the two-way spillover effect with encroachment.Thus,V Company’s optimal advertising and pricing strategies are discussed relied on three different models.The research shows that the profit of V Company under one-way spillover effect with encroachment is greater than the profit under no spillover without encroachment but the profit of the manufacturer is on the contrary;the profits of V Company and the manufacturer under two-way spillover effect with encroachment are both greater than the profits under no spillover effect without encroachment.The research makes further efforts to analyze and compare the changing trends of optimal advertising input decision,optimal pricing decision,demands in market and profits of V Company with the parameters through numerical analysis.It shows that V Company should invest in advertisement no matter whether there is one-way or two-way spillover effect because direct demands from advertising investment is effective in increasing V Company’s pricing and market share of products.Secondly,a certain degree of spillover effect will not negatively affect the market demand and profits of the lingerie brand retailer.Thirdly manufacturer M will have free-riding behavior in advertising investment under one-way spillover effect and manufacturer M and V Company will have two-way free-riding behavior in advertising investment under two-way spillover effect which can promote benefits and bring positive effects to both parties.The above conclusions are based on the results of inverse solution of Stackelberg Game model and the numerical simulation method,which can provide a theoretical basis for advertising investment and pricing decisions for lingerie brand retailers considering manufacturer’s channel encroachment,free-riding behavior and spillover effect on advertising investment.