1) The document discusses how advertising and word-of-mouth influence the sequential distribution of new products across multiple stages. It focuses on the movie industry where films are released first in theaters and then on retail. 2) A dynamic linear model is used to link a product's demand to its underlying goodwill stock, which is influenced by advertising and word-of-mouth over time. The effectiveness of advertising can increase initially through "wear-in" but then decrease through "wear-out" as audiences forget or become tired of messages. 3) The study analyzes 360 movies to understand how advertising and word-of-mouth effectiveness varies between the theater and retail stages. It finds that reallocating advertising

1. Dynamic Effects Of Advertising
And Word Of Mouth In Sequential
Distribution Of New Products
Marketing Mix Seminar 2014
By Federico Triolo

2. Sequential distribution
 Many industries release their products (usually with
short life) in sequential stages
 They also lunch different campaigns with a
communication mix
Word of mouth (WMO) advertising
Marketing Mix Seminar: Federico Triolo

3.  Book publishers:
Hardcover editions Paperbacks
 Hollywood studios:
Cinemas Retails
Marketing Mix Seminar: Federico Triolo

4. Motion pictures/movies
context
Hollywood case: $ 70.8 million to produce a movie
$ 35.9 million to market a movie
$ 45.7 million to cinemas revenues
No breakeven point
Marketing Mix Seminar: Federico Triolo

5. What sequential distribution can
add???????
 Attract new customers’ preferences (price, style)
 Extend product’s life cycle
 Improve firms revenues
Different campaigns for different stages
Marketing Mix Seminar: Federico Triolo

6. Marketing Mix Seminar: Federico Triolo
Advertising before product release

7.  Increases: By carryover/wear-in
 Decreases: By forgetting/wear-out
 Dynamical linear model (DLM): was proposed
by the authors to link a products’ demand to its
underlying goodwill stock. DLM links a movie’s
revenue to its advertising and WOM through an
aggregate response function
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Ad Effectiveness

8. How can actually both advertising and WOM
influence a product’s demand???
Marketing Mix Seminar: Federico Triolo
Theatre stage  +$ in
AD  more effective
(Wear-in&wom)
Later stage  -$ in AD 
more effective  WOM

9. Literature- Sequential ditribution
 This study focuses its attention on multistage diffusion
of new products and advertising
 Especially on two stages theaters and video because
they generate more than 95% of the revenues within
the field. Respectively 9.6 billion and 24.2 billion a year
 Expenditure on advertising: Theaters ($3.8) and video
($1.1)
 Uniform prices to highly differentiated films
Marketing Mix Seminar: Federico Triolo

10. Dynamic Ad Effectiveness
 Research focuses on advertising strategies in
sequential distributions of new products in order to
capture its effectiveness
Marketing Mix Seminar: Federico Triolo

11. Dynamic WOM Effectiveness
 In addition to advertising, WOM plays a central role for
experience goods such as movies, whose qualities
cannot be easily assumed before consumption
 Internet communities
 Dynamic and fast force, rather than static and slow
Marketing Mix Seminar: Federico Triolo

12. Aggregate Demand and Goodwill Stock
 Goodwill basically drives the demand for the movie
It decays over time both AD and WOM try to increase its
value
Weekly revenue
Marketing Mix Seminar: Federico Triolo

13. Dynamic Advertising and WOM Effectiveness
 Now the analysis is focused on how the AD, and then
WOM, effectiveness vary over time
 AD wear-out:
1. Copy: E.g. audiences know about the actors, etc.
2. Repetition: When viewers gain no novel information
 AD wear-In:
1. Firms rotates its ads
2. Appealing customers’ feelings
3. Consumer forgetting
Marketing Mix Seminar: Federico Triolo

14. Empirical study – Data
 360 movies of different genres: Action (12%),
comedy (36%), dramas (24%)
 On average, the studios behind these study spent
$43 million on production and gained $51
Theatrical revenues
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15. Parameter Estimates
 Competitive Advertising induces a negative effect on
demand
 New theatrical and video releases generate a positive
and significant lift on video demand
 Theatrical advertising enhances positive effectiveness
and leads to wear-in due to entertaining content of films
(drama, story) and it boosts effectiveness of WOM
 Elevate level of WOM can reduce its effectiveness
Marketing Mix Seminar: Federico Triolo

16.  Although repeated advertising wears in at the theater
stage, it wears out at the video stage (w1
(2)=1,023)
 WOM reduces its efficacy at the theater stage, but not
at the video stage  consumers rely more on
communities here than ads
Theater stage Video stage
Marketing Mix Seminar: Federico Triolo

17. Managerial implications
The applications of the proposed model based on the
potential re-allocation of ad budgets. They allocate the
theatrical budget first; then, given the predicted resulting
theatrical demand, they allocate the video budget.
Marketing Mix Seminar: Federico Triolo

18. Marketing Mix Seminar: Federico Triolo
• The study shows that the ad-
budget could be re-allocate in
order to increase the total log-
revenue by 1%-15%
• Movies with prestige and critics
(69,2%) could collocate more
budget at the first stage, rather
other (29,4%) could allocate less
than observed

19. Consistent Findings
1. A large number of critics’ reviews prevent forgetting
because films attracting more critics’ reviews they enjoy
public awareness, appeal and fascination
2. Advertisers for films that enjoy reduced forgetting and
increased ad wear-in could consider allocating more ad
budgets at the theater stage
3. Intuitively, films that enjoy greater cumulative theatrical
revenues could allocate higher ad budgets at the video
stage
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20. Marketing Mix Seminar: Federico Triolo
THANKS !!! 