thèse finale Nawel Amrouche

thèse finale Nawel Amrouche

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´ ´ECOLE DES HAUTES ETUDES COMMERCIALESAffiliated withThe UNIVERSITY OF MONTREALStrategic Interactions in Marketing Channel:Shelf-Space Allocation,Pricing and Advertising DecisionsbyNawel Amrouche´ ´Thesis presented to the Ecole des Hautes Etudes Commercialesin fulfillment for the degree of Philosophiæ Doctor (Ph.D.)in Business Administration (Marketing)February 2007c Nawel Amrouche, 2007´ ´ECOLE DES HAUTES ETUDES COMMERCIALESAffili´ee `a´ ´UNIVERSITE DE MONTREALStrategic Interactions in Marketing Channel:Shelf-Space Allocation,Pricing and Advertising DecisionsparNawel Amrouche´ ´Th`ese pr´esent´ee `a l’Ecole des Hautes Etudes Commercialesen vue de l’obtention du grade de docteur (Ph.D.)en Administration (Marketing)February 2007c Nawel Amrouche, 2007´ ´ECOLE DES HAUTES ETUDES COMMERCIALESAffili´ee `a´ ´UNIVERSITE DE MONTREALStrategic Interactions in Marketing Channel:Shelf-Space Allocation,Pricing and Advertising DecisionsbyNawel AmroucheCette th`ese a ´et´e soumise pour ´evaluation au jury compos´e des personnessuivantes:Pr´esident-rapporteur: Alain d’AstousProfesseur titulaire, HEC Montr´eal, CanadaDirecteur de recherche: Georges ZaccourProfesseur Titulaire, HEC Montr´eal, CanadaMembre du jury: Emine SarigolluAssociate Professor, McGill University, CanadaExaminateur externe: Charles A. IngeneProfessor of Marketing, The University of Mississipi, USACette th`ese a ´et´e soutenue et accept´ee le 22 / 02 / ...

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´ ´ECOLE DES HAUTES ETUDES COMMERCIALES
Affiliated with
The UNIVERSITY OF MONTREAL
Strategic Interactions in Marketing Channel:
Shelf-Space Allocation,
Pricing and Advertising Decisions
by
Nawel Amrouche
´ ´Thesis presented to the Ecole des Hautes Etudes Commerciales
in fulfillment for the degree of Philosophiæ Doctor (Ph.D.)
in Business Administration (Marketing)
February 2007
c Nawel Amrouche, 2007´ ´ECOLE DES HAUTES ETUDES COMMERCIALES
Affili´ee `a
´ ´UNIVERSITE DE MONTREAL
Strategic Interactions in Marketing Channel:
Shelf-Space Allocation,
Pricing and Advertising Decisions
par
Nawel Amrouche
´ ´Th`ese pr´esent´ee `a l’Ecole des Hautes Etudes Commerciales
en vue de l’obtention du grade de docteur (Ph.D.)
en Administration (Marketing)
February 2007
c Nawel Amrouche, 2007´ ´ECOLE DES HAUTES ETUDES COMMERCIALES
Affili´ee `a
´ ´UNIVERSITE DE MONTREAL
Strategic Interactions in Marketing Channel:
Shelf-Space Allocation,
Pricing and Advertising Decisions
by
Nawel Amrouche
Cette th`ese a ´et´e soumise pour ´evaluation au jury compos´e des personnes
suivantes:
Pr´esident-rapporteur: Alain d’Astous
Professeur titulaire, HEC Montr´eal, Canada
Directeur de recherche: Georges Zaccour
Professeur Titulaire, HEC Montr´eal, Canada
Membre du jury: Emine Sarigollu
Associate Professor, McGill University, Canada
Examinateur externe: Charles A. Ingene
Professor of Marketing, The University of Mississipi, USA
Cette th`ese a ´et´e soutenue et accept´ee le 22 / 02 / 2007iv
ACKNOWLEDGMENTS
Writing this doctoral thesis was by nomeans a simple task. At the same time,
it was really beneficial for me in different respects. First and foremost, I learnt
how to be patient even if I still have a lot to do. Second, all critics suggested
during the conferences or by reviewers are constructive and helped me to accept
and deal with divergent point of views. Third, I learnt how to manage important
and complex decisions even if they are surrounded with uncertainty.
This dissertation could never be accomplished without the contributions of so
many people around me. I’m very grateful to them for their encouragements,
incentives, guidance as well as their financial support throughout the dissertation
process. First of all, I would like to thank deeply my thesis advisor, Dr. Georges
Zaccour, for being so helpful and patient during these years. In fact, he was also
my advisor during my Master thesis. I’m very grateful for his continuous moral
and financial support. Besides, I would like to thank him for his availability
whenever I needed advices.
Also, I wouldlike tothank personally Dr. Guiomar Mart´ın-Herra´n. It was my
great pleasure working with her. Her contributions to this thesis as well as her
fruitful comments were and remains invaluable to me. I hope profoundly that we
keep intouch andworkalot together inthe futurealongwithGeorges. Moreover,
Iwould like to expressmy gratitude toDr. Charles A. Ingene, Dr. Alain d’Astous,
Dr. Mich`ele Breton, Dr. Emine Sarigollu and Dr. Sihem Taboubi for serving on
my thesis committee.
I dedicate this work to my family: my parents Moncef and Najet Amrouche,
my sister Neila, my brother Firas and my brother-in-law Mehdi. I’m very obliged
to them for their lovely support, incentives and patience. Words alone can never
express my eternal gratitude to my parents who gave me the wright education as
well as the hunger of knowledge since my early childhood.
Last but not least, I would like to thank warmly all my true friends: Meriem,
Nadia, Mehdi, Rim, Kadi, Sonia, Souheila, Amira and so many others who never
gave up supporting me during my arduous Ph.D. program even if, the most of
them, were faraway and too many miles separate us. I should not foget also
Francine Benoˆıt for her technical help to write this thesis.
Finally, I would like to thank ”La Mission Universitaire de la Tunisie” and
”HEC Montr´eal” for giving me grants and enough complementary funds to the
financial support of Georges at different stages of my doctoral studies.v
ABSTRACT
This thesis has a vested interest in the strategic interaction in a marketing
channel composed of one retailer and one manufacturer. The importance of such
interaction is reinforced when the retailer competes against the manufacturer by
offering her own brand along with the national one and when channel members
have to decide on the optimal amount of shelf space to be allocated to each brand
within a category, what price is suitable for each one of them and how much
money to invest in advertising in order to increase the goodwill of each brand in
the market.
One of the important merchandising decisions in retailing is the allocation of
the shelf space to different categories and brands. The literature has suggested
long time ago rules to help retailers optimize the value of such asset. These
rules, which are related to profitability and consumer’s desire of variety, are now
implemented in widely available software. Nevertheless, One aspect is missing in
both the operations research literature and in the decision-support systems: the
strategic interaction between manufacturers and retailers. Indeed, the formers
are competing among themselves to secure the biggest possible share and hence
are attempting to design mechanisms to incite the retailers to provide them a
competitive advantage. On the other hand, private labels have been gaining
ground in all major economies and their popularity is increasing. Then, their role
in retailing cannot be ignored any more. Improved quality was verified as a major
determinant of their success. However, national brands remain always the most
powerful brands as long as they invest heavily in advertising. Hence, it seems
that investing in advertising to build up more equity for private labels becomes
more and more a necessity at least for some categories to be able to compete with
leading national brands.
Thefirstessayconsidersastaticgamewherethenationalbrand’smanufacturer
acts as a leader and maximizes her own profit and the retailer who carries the
manufacturer’s national brand as well as her private label, acts as a follower and
maximizes the total categories profit. In this essay, the retailer may offer either a
private label of low quality or a private label of high quality. The essay has three
objectives: (i) it characterizes the resulting equilibrium in terms of shelf space
and pricing (retail prices and wholesale price) assuming that no brand could be
excluded from the shelf, (ii) discusses the divergent insights with previous studies
and available software in retailing (PROGALI, SLIM, OBM, etc.) and finally (iii)
providessensitivityanalysisforanalyzingcloselytheimpactofspecificparameters,vi
measuringtheprivate label’s quality, on shelf-space allocation decision andprofits.
The results of this exploratory study propose that the allocation on the shelves
depends on the private label’s quality highlighting the fact that this quality is a
multidimensional concept.
Assuming that the retailer is also a competitor of the national brand’s manu-
facturer, i.e., offering her own brand to consumers along with the national brand,
the second essay attempts to find under which conditions it is feasible for a manu-
facturer todesign an incentive scheme dependenton the shelfspace such that (i) it
improves her proportion on the shelves with respect to a benchmark scenario with
no incentive and (ii) it is profitable for her. In this essay, we allow the retailer to
use either a differentiation or an imitation strategy to precise the private label’s
concept competing against the national brand. Hence, the retailer may offer a
premium brand, a me-too brand, a white-label generic or a distinct-second tier.
The results show that the design of a shelf-space-dependent incentive depends on
factors such as: 1/ the private label’s concept as measured by the private label’s
image and the price competition between both brandsin the market, 2/ the trans-
fer price’s level when no incentive is available and 3/ the proportion on the shelves
allocated to the national brand in the benchmark scenario.
The third essay deals with pricing and advertising in a dynamic environment.
We assume that the goodwill (brand equity) of each brand evolves according to
a modified Nerlove-Arrow model where the effect of the competing comparative
advertising is also taken into account. The retailer decides on both retail prices
in addition to the amount to be allocated for advertising. The manufacturer
determines the wholesale price as well as the amount to be allocated to her adver-
tising. The game is played a` la Nash with a feedback information structure. The
main findings could be summarized as follows. The increase of the each brand’s
goodwill reduces the price competition between them and enhances their differen-
tiation aswellastheirmarket power. Besides, theretailer willexploit thenational
brand’s vulnerability to the level of her comparative ad’s investment though the
manufacturer does not care about the private label’s vulnerability as her brand is
very well established in the market. Finally, the higher the own comparative ad’s
effectiveness of each brand, the higher its investment in advertisement.
Key Words: Shelf-Space Allocation, Marketing Channel, Private Labels, Game
Theory,IncentiveStrategies,ComparativeAdvertising,NashandStackelbergEqui-
librium.vii
´ ´RESUME
Cette th`ese s’int´eresse particuli`erement a` l’interaction strat´egique dans un
r´eseaumarketingcompos´ed’und´etaillantetd’unseulmanufacturier. L’importance
de cette interaction est renforc´ee quand le d´etaillant entre en concurrence avec le
manufacturier en offrant sa propre marque ainsi que la marque nationale et que
les d´ecisions portent sur le montant optimal `a allouer `a chaque marque au niveau
de l’espace lin´eaire, le prix a` fixer a` chacune d’elles et enfin le montant a` investir
en campagnes publicitaires pour augmenter la notori´et´e de chaque marque.
Le probl`eme d’allocation d’espace constitue l’une des d´ecisions strat´egiques de
merchandising. Depuis plusieurs d´ecennies, la litt´erature a offert une panoplie
de r`egles pour aider les d´etaillants a` optimiser une telle composante cl´e de leur
politique de mise en march´e. Ces r`egles, impl´ement´ees aujourd’hui dans plusieurs
logiciels d’aide a` la d´ecision, sont conditionn´ees par la valeur ajout´ee en terme
de profits et la vari´et´e que recherche le consommateur. Toutefois, un aspect
important fait d´efaut dans ces deux outils a` savoir l’interaction strat´egique entre
les d´etaillants et les manufacturiers. Ces dernierscherchent toujours `ase procurer
les plus grandes parts au niveau de l’espace lin´eaire en offrant des incitatifs aux
d´etaillants pour leur c´eder un avantage comp´etitif. D’autre part, les marques
priv´ees gagnent de plus en plus de popularit´e et leur roˆle dans le commerce de
d´etail ne peut plus ˆetre ignor´e graˆce a` l’am´elioration de leur qualit´e. Toutefois,
les marques nationales gardent leur puissances concurrentielles sur le march´e tant
qu’elles investissent abondamment en publicit´e. Ainsi, investir en campagnes
publicitaires pour augmenter la notori´et´e des marques priv´ees devient, du moins
pour certaines cat´egories, une n´ecessit´e pour pouvoir contrecarrer la menace des
marques nationales leaders.
Le premier essai consid`ere un jeu statique ou` un manufacturier, choisi comme
leader, maximise son propre profit et le d´etaillant, choisi comme suiveur, offre sa
propre marque ainsi que la marque nationale et maximise le profit de toute la
cat´egorie de produit. Dans cet essai, le d´etaillant offre une marque priv´ee de
qualit´e faible ou ´elev´ee. L’essai a trois objectifs: (i) il caract´erise les diff´erents
´equilibres en termes de proportion a` allouer sur l’espace lin´eaire pour chaque mar-
que et en terme de prix (prix de d´etails et prix de gros) dans le cas ou` aucune
marque n’est exclue de l’espace, (ii) discute les divergences de nos r´esultats avec
ceux des logiciels disponibles sur le march´e (PROGALI, SLIM, OBM, etc.) et
finalement (iii) pr´esente une analyse de sensibilit´e pour d´eterminer l’impact de
certains param`etres, qui mesurent la qualit´e de la marque priv´ee, sur la d´ecisionviii
d’allocation d’espace ainsi que sur les profits. Les r´esultats de cette ´etude ex-
ploratoire sugg`erent que l’allocation de l’espace d´epend de la qualit´e de la marque
priv´ee ce qui implique que celle-ci est un concept multidimensionnel.
Reprenant le mˆeme cadre th´eorique dans le deuxi`eme essai, c.a.d. ou` le
d´etaillant offre sa marque priv´ee en commercialisant aussi la marque nationale,
on cherche a` d´eterminer sous quelles conditions le manufacturier peut offrir au
d´etaillant un incitatif qui d´epend de l’espace lin´eaire et tel que (i) il lui permet
d’augmenterlaproportionallou´ee `alamarquenationaleauniveaudel’espacecom-
par´e au cas benchmark ou` aucun incitatif n’est offert et (ii) il lui est profitable.
Danscetessai,led´etaillantpeutchoisirsoitunestrat´egiedediff´erenciationsoitune
strat´egie d’imitation en offrant plusieursconcepts de marquespriv´ees (les marques
premiums, les marques d’imitation, les marques sans nom et les ”distinct second
tiers”). Les r´esultats sugg`erent que plusieurs facteurs sont a` consid´erer quand le
manufacturier veut offrir un tel incitatif: 1/ le concept de la marque priv´ee mesur´e
par l’image perc¸ue par les consommateurs et la concurrence prix entre les deux
marques, 2/ le niveau duprixde transfertdansle cas benchmarkainsi que 3/ celui
de l’espace lin´eaire allou´e a` la marque nationale dans le mˆeme cas.
Le dernier essai traite des d´ecisions de prix et de publicit´e dans un cadre dy-
namique. On suppose que la notori´et´e de chaque marque ´evolue selon un mod`ele
modifi´e de Nerlove-Arrow en consid´erant l’effet de la publicit´e comparative de la
marqueconcurrente. Led´etaillant doitd´eterminerlesprixdechaquemarqueainsi
quelemontantdel’investissement publicitaire. Lemanufacturier,quant`alui,doit
d´ecider le niveau de son prix de gros ainsi que le montant d’investissement publici-
taire pour sa propre marque. Le concept de solution est `a la Nash avec une struc-
ture d’information par r´etroaction (feedback). Les r´esultats les plus int´eressants
peuvent ˆetre r´esum´es comme suit. L’augmentation du capital de marque r´eduit
la concurrence prix entre les deux marques et aide `a leur diff´erenciation ainsi qu’`a
l’am´elioration de leur pouvoir de march´e respectif. Par ailleurs, le d´etaillant sem-
ble exploiter la vuln´erabilit´e de la marque nationale a` sa publicit´e comparative
alors que le manufacturier est compl`etement indiff´erent a` la vuln´erabilit´e de la
marque priv´ee `a sa propre publicit´e. Une explication plausible est que la marque
nationale est d´eja` bien ´etablit sur le march´e. Finalement, plus l’efficacit´e de la
publicit´e comparative de chaque marque est grande, plus cette derni`ere investit
encore dans une telle publicit´e.
Mots cl´es : allocation d’espace, circuit de distribution, marques priv´ees, th´eorie
des jeux, strat´egies incitatives, publicit´e comparative, ´equilibres de Nash et de
Stackelberg.ix
Contents
1 Introduction 1
1.1 Shelf-Space Allocation . . . . . . . . . . . . . . . . . . . . . . 1
1.2 National and Private Brands Competition . . . . . . . . . . . 4
1.3 Conflicts and Cooperation . . . . . . . . . . . . . . . . . . . . 6
1.4 Comparative Advertising . . . . . . . . . . . . . . . . . . . . . 8
1.5 Description of the Essays . . . . . . . . . . . . . . . . . . . . . 11
1.6 Main Contributions of the Dissertation . . . . . . . . . . . . . 17
2 Shelf-Space Allocation of National and Private Brands 21
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.3 Stackelberg Equilibrium . . . . . . . . . . . . . . . . . . . . . 30
2.4 Simulation Results . . . . . . . . . . . . . . . . . . . . . . . . 35
2.4.1 Low-Quality Private Label . . . . . . . . . . . . . . . . 37
2.4.2 High- Quality Private Label . . . . . . . . . . . . . . . 39
2.4.3 Testable Conjectures . . . . . . . . . . . . . . . . . . . 40
2.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . 44
2.6 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3 A Shelf-Space-Dependent Wholesale Price when Manufac-
turer and Retailer Brands Compete 51
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
3.3 Equilibria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
3.3.1 Nash Equilibrium . . . . . . . . . . . . . . . . . . . . . 58
3.3.2 Incentive Stackelberg Equilibrium . . . . . . . . . . . . 61
3.4 Simulation Results . . . . . . . . . . . . . . . . . . . . . . . . 63
3.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
3.6 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4 PricingandComparative-AdvertisingEquilibriumStrategies
in a Dynamic Marketing Channel 79
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.3 Feedback Nash Equilibrium . . . . . . . . . . . . . . . . . . . 85
4.3.1 Impact of Comparative Advertising Parameters . . . . 91x
4.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
4.5 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
5 Conclusions and Implications 102
References 110