Integrated Advertising and Supply Chain Plans for an Innovative Product under Uncertainty
Abstract
Demand for an innovative product typically follows
a diffusion process. Prior advertising research on the innovative
new product assumes an infinite capacity and a deterministic
demand situation. However, capacity constraints are common for
the new products. Also, the demand for the new product is
extremely difficult to predict before its launch. Nonetheless, a
firm that deals with the new product mostly has to take initial
advertising and production planning decisions under an
uncertain demand and capacity constrained situation. After
observing the initial demand, the firm generally adjusts its
marketing and production plans as per the demand realized. In
this paper, we suggest the use of a two stage stochastic
programming with recourse to analyze this situation. Our results
show how the operational characteristics such as inventory
holding and back order costs can significantly influence the
advertising under different diffusion patterns.
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