Integration of development and advertising strategies for multi-attribute products under competition

In recent years, an increasing number of competing firms have started to integrate their product attribute development and advertising strategies by targeted advertising of the best-developed attribute of their product. With a focus on such integration and its potential effects, we establish an analytical model in which two competing firms sell multi-attribute products. Each firm can choose which attribute to focus on in its development strategy and which attribute to emphasize in its advertising strategy. By optimizing the development and advertising strategies of these firms, we first verify the integration of these two strategies as each firm advertises only its developed attribute. Second, we find that advertising, according to the firms’ development choices, plays distinctive roles on profit generation: the difference-alleviating or difference-strengthening effect. Therefore, when determined endogenously, the advertising intensities show qualitatively different changing trends: a monotonous curve in the same-attribute-development case but an inverted-U shaped curve in the different-attribute-development case. Third, we find advertising establishes a connection between firms’ attribute development choices, making them depending not only on their own development cost. A smaller difference between the development costs of these firms or a higher advertising efficiency increases the firms’ willingness to develop a same attribute. We also extend our analysis to the flexible quality level of the non-developed attribute, asymmetric substitution degrees between attributes and prices, or the endogenous attribute development levels, and study how the interactions between the product development and advertising are affected. This paper highlights the importance of making development and advertising strategies jointly.