Trichy V. Krishnan

Impact of a Late Entrant on the Diffusion of a New Product/Service

Starting with Basss (1969) article, diffusion researchers have predominantly focused on modeling category-level sales growth and issues surrounding it. In this article, the authors propose a brand-level diffusion model and demonstrate its managerial use by applying it to the following issue: If a new brand enters a category that has not attained its peak sales, how can a practicing manager evaluate its impact on the category and on the incumbent brands? The proposed model helps the manager diagnose whether the late entrant affects the market potential and/or the diffusion speed of the category and of the incumbent brands. The authors test the model using brand-level sales data from the cellular telephone industry in multiple markets.

Optimal Dynamic Advertising Policy for New Products

Advertising is one of the key marketing tools managers have at their disposal to influence their customers into purchasing a new product. The overall objective of new product advertising is to inform and persuade customers. Drawing up an advertising plan for a new product that is under the influence of diffusion phenomenon is not an easy task. Hence, research in this area is very limited. In our research, we use an empirically proven diffusion demand function that explicitly incorporates the advertising component. Our results suggest that optimal advertising is determined by the advertising effectiveness, discount rate, and the ratio of advertisement to profits. Depending upon the interplay among these factors, the optimal advertising takes decrease-increase, increase-decrease, monotonically increasing or monotonically decreasing shape.

Research Note---Customer Loyalty Programs: Are They Profitable?

Loyalty programs are very common in practice. Many researchers have worked at understanding the impact of loyalty programs on market competition and the mechanism behind it. Interestingly, almost all of the studies have explored a symmetric equilibrium where both of the competing firms offer a loyalty program. To our knowledge, the extant literature has not investigated in-depth whether asymmetric equilibrium can exist where only one firm chooses to offer a loyalty program and the other firm chooses to compete via lowering prices. Such a question is important because some markets do support such asymmetric equilibriums with respect to loyalty programs. Also, the existence of asymmetric equilibrium shows that a loyalty program need not be profitable for some firms. In this paper, we use a game-theoretic framework to investigate specific types of customer loyalty programs that provide benefit to loyal customers in the form of discount over market prices. The model considers consumer switching and includes two types of consumer heterogeneity. The first type of heterogeneity concerns the differences between customers with respect to their liking for loyalty programs, and the second type concerns the differences among the loyalty program members with respect to their ability to collect enough loyalty points to redeem loyalty rewards. By analyzing a duopoly market, we find that both symmetric equilibrium (i.e., where both competing firms offer the loyalty program) and asymmetric equilibrium (i.e., where one firm alone offers the loyalty program) can be sustained. The paper explores conditions for the existence of these two equilibriums.