Modeling the impact of product quality on dynamic pricing and advertising policies

Régis Y. Chenavaz*, Gustav Feichtinger, Richard F. Hartl, Peter M. Kort

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

11 Citations (Scopus)

Abstract

The marketing-mix of price–quality and advertising–quality relationship is well studied. Less understood is the price–advertising–quality relationship. This article fills the gap, investigating the interplay between price, advertising, and quality in an optimal control model. Our results generalize the condition of Dorfman–Steiner in a dynamic context. Also, they point to the impact of greater product quality on the dynamic policies of pricing and advertising. Furthermore, a phase diagram analysis shows that quality develops monotonically in time and converges to a unique steady state. We also show that quality investment could either decrease or increase over time but this depends on its effectiveness. Our results spot the profitable opportunities of a firm managing a more complex marketing-mix.
Original languageEnglish
Pages (from-to)990-1001
Number of pages12
JournalEuropean Journal of Operational Research
Volume284
Issue number3
DOIs
Publication statusPublished - 1 Aug 2020

Keywords

  • Condition of Dorfman–Steiner
  • Dynamic advertising
  • Dynamic pricing
  • Marketing mix
  • Price–advertising–quality relationship

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