Adapted Hotelling Model for Differentiation Strategiesin Marketing Campaigns

• Main Authors: Yung-Jan Cho, 卓雍然
• Other Authors: Chi-Cheng Wu
• Format: Others
• Language: en_US
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/68080638763181771096

博士 === 國立中山大學 === 企業管理學系研究所 === 103 === To cope with the increasing variety and complexity of marketing campaigns, we relax two major assumptions in the classical Hotelling model - low differentiation and universal transportation cost. With these adaptation, we extend the application of Hotelling model to highly differentiated markets, and make it possible to analyze and compare differentiation strategies in various marketing campaigns upon a unified framework. Besides the traditional predictions, our adapted model generates a series of qualitatively distinctive propositions that fit the dynamic market reality today. By relaxing the assumption of low difference, we conduct a holistic analysis on the Hotelling model. Over the full spectrum of difference we find that detrimental price competition might not occurs in fully-covered markets, and differentiation is not always good for profitability. In the medium difference there is a previously unexplored regime, wherein firms interactively cover the full market with monopolistic prices. In this regime, prices become strategic substitutes instead of strategic complements; the game is not a prisoners’ dilemma but a chicken game. We also identify an optimal level of difference, below (above) which firms opt to differentiate (un-differentiate). By extending the notion of transportation cost in a duopolistic Hotelling model, we allow two competing firms to manipulate their own and their rival’s transportation costs via marketing campaigns. Under this setting firms’ differentiation strategies are contingent upon the characteristics of the campaign. Firms’ strategic interactions lead to intriguing outcomes: hostile intentions may induce reciprocal movements; pro-competition actions may lead to anti-competition results; functionally sophisticated instruments may become prisoners’ dilemma; and high campaign cost may benefit the firms. From the theoretical standpoint, we supplement Hotelling model with the flexibility to cope with the growing complexity in branding campaigns. For practitioners, we systematically suggest a set of guidelines for various campaigns. When firms have choices among campaigns, we suggest how to engage; and when they have not, how to react.