Abstracts
Optimal Pre-and Post-launch Advertising for Short Lifecycle Products
Prasad Naik, TCS Ltd., INDIA
For products with short lifecycles, the growth and maturity phases are short lived and the decline phase arrives soon after the launch. Consequently, marketing plans need to account for the short pre-launch window, the limited post-launch revenue window, and the salvage value from future revenue opportunities. To this end, the authors formulate a dynamic model in which pre-launch advertising builds product awareness and post-launch advertising generates sales over time. They derive the optimal pre- and post-launch strategies analytically and deduce three new propositions on how the optimal advertising varies with the length of pre-launch window, the length of post-launch window, and the degree of anticipation of future revenues. Empirical analyses based on hundreds of movies across diverse genres and studios support these propositions. The findings reveal that a product with a short (long) pre- or post-launch window spends less (more) on advertising; its weekly ad intensity increases rapidly (gradually) before launch; its weekly ad intensity decreases rapidly (gradually) after launch; and the anticipation of future revenues increases its post-launch advertising, but not the pre-launch advertising. Further comparisons of the projected optimal and actual ad spending show that, on average, movies with positive margins allocate their pre- and post-launch ad budgets nearly optimally, although diversity in decisions and performances prevails. Hence, their returns on investments vary dramatically from -42% to 502%, emphasizing the importance of optimal advertising for short lifecycle products.
