A differential game of retailer promotions

The paper identifies equilibrium marketing strategies over time in a marketing channel of distribution. A number of retailers promote locally a manufacturer's brand in order to increase their sales. However, sustained and substantial retailer promotions will damage the image of the manufacturer's brand. The manufacturer advertises nationally to improve the brand image. Demand at the retail outlets increase both by the local promotions and by the strength of brand image. First, we identify a noncooperative equilibrium of a differential game played with Markovian strategies. Next, we study a cooperative game where the players make coordinated marketing decisions and address the question whether the manufacturer can design an incentive strategy such that the retailers will stick to their parts of the agreed solution. (C) 2003 Elsevier Science Ltd. All rights reserved.