Benefits of Bilateral Participation in Cooperative Advertising by Bintong Chen, Ph.D., Professor at University of Delaware

Abstract Unilateral participation in cooperative (co-op) advertising is popular in practice and has been extensively studied in literature. However, we show in this paper that it is in general not able to coordinate the distribution channel. Motivated by many franchising system where franchisees are required to pay “advertisement fee” to the franchisor for its brand advertisement, we propose a bilateral participation co-op advertisement system for a one-manufacturer and multiple retailer distribution channel, where the manufacturer’s national advertising expense is also properly shared by the retailers. It is shown that the bilateral participation system is capable of coordinating the distribution channel under very a general channel structure and sales response function and can lead to a Pareto improvement over any unilateral participation system. The benefits from adopting bilateral participation over unilateral participation in co-op advertisement are then quantified under a commonly used additive sales response function with considerations of scaling effect of number of retailers and stealing/spillover effects among retailers. Finally, we examine cases when channel members’ participation rates and pricing are endogenously determined. In these cases, bilateral participation no longer coordinates the channel; nonetheless, it leads to significantly higher channel efficiency than unilateral participation.

Biography Bintong Chen is Professor of Business Administration and Associate Dean for Research for the Lerner College of Business and Economics at University of Delaware, with a secondary appointment in the Department of Civil and Environmental Engineering. He received his Ph.D. in operations management/research from the Wharton School, M.S. in systems engineering from the University of Pennsylvania, and dual B.S. degrees in ship-building and naval architecture as well as electrical engineering from Shanghai Jiao Tong University in China.

His research interests include optimization techniques and applied business modeling. He has published in many high quality academic journals, including Management Science, Operations Research, Production and Operations Management, Transportation Science, Mathematical Programming, SIAM Journals on Optimization, IEEE Transaction on Automatic Control, and his research work has been widely cited. He is currently a senior editor for Production and Operations Management.

He has taught operations management/research related classes at undergraduate, MBA, and Ph.D. levels. He has supervised and worked on business projects for JPMorgan Chase, AstraZeneca, Delaware Department of Transportation, Agriculture Bank of China, Nordstrom, Cascade Natural Gas Corporation, Key Bank, Northwest Dairy Farm, Burlington Northern Rail, and AT&T. He is a board member for APICS, the Association for Operations Management.

He received the MBA teaching award at University of Delaware in 2013 and several teaching, research, and faculty excellence awards at both college and university levels while working at Washington State University.

For more information, please contact Wenjing Shen at wenjings@drexel.edu.