Advertising strategies for new product diffusion in emerging markets: Propositions and analysis

We develop advertising strategies for a firm which has a new product for which demand exists in an emerging market. However, the primary channels for distribution of the firm’s product do not exist, because either the market has not been opened up, or the firm has not entered the market. Therefore, the consumers use the secondary channels in other markets. The current research seeks to answer questions such as: (i) Is it beneficial to advertise for the product before the market opens? (ii) What should be the difference in advertising before and after the market opens? (iii) What is the effect of various parameters (such as the likelihood of product adoption for the primary and secondary channels, market potential and coefficient of innovation and imitation) on the optimal advertising policies? The above problem is relevant for the situation faced by Japanese electronics goods manufacturers before they entered the Indian market; or a company, which has regional presence in one part of a country (say, urban), and gets access to another part later (e.g., rural). The problem is modeled as an optimal control problem. Relevant propositions are developed for optimal normative advertising policy. Numerical examples are provided to illustrate key policy results.