Advertising for a new product introduction: a stochastic approach

Many marketing policies can be correctly explained and analyzed only through a stochastic approach to the problem. In this thesis the planning of a pre-launch publicity campaign has been studied using the stochastic control theory and some recent results of the stochastic linear quadratic control theory. We assume that a firm controls the goodwill evolution of a product through the advertising flow, or some other communication channel, in the programming interval [0, T]. The advertising flow increases the goodwill level which otherwise spontaneously decreases. Such hypotheses have been introduced by Nerlove and Arrow in a deterministic framework and have led to the development of a model class called “advertising capital model , in which the advertising flow is considered as an investment in goodwill (a stock which represents the firm image in the market). In this work: • we assume that the advertising effects on the goodwill evolution are stochastic; • we describe the effects of the word-of-mouth publicity, by introducing a diffusion term representing the goodwill volatility; • we assume that the firm can use different advertising channels.