Cust. Need. and Solut.

(2017) 4:18–27
DOI 10.1007/s40547-017-0070-2

RESEARCH ARTICLE

Generic and Brand Advertising Strategies

Under Inter-Industry Competition
Yuanfang Lin 1 & Sandeep Krishnamurthy 2

Published online: 20 February 2017

# Springer Science+Business Media New York 2017

Abstract Industries invest in over billion dollars annually to Keywords Generic advertising . Brand advertising .
drive up the primary demand and to fence off competing new Inter-industry competition . Game theory
industries’ threat to their customer bases. Companies in addi-
tion to contributing to industry generic campaign also heavily
rely on brand advertising in order to capture a greater market
1 Introduction
share. Using a game-theoretic approach, we study generic and
brand advertising competition under such an inter-industry
More than a billion dollars is spent annually on generic adver-
competitive framework. We built an analytical model to study
tising aiming to drive up the primary demand for the entire
two competing industries each simultaneously making generic
product category (Armbruster and Nichols 2001).1 In addition
advertising decisions followed by firms within each industry
to the agricultural or commodity products such as beef,
simultaneously conducting brand advertising. We found that
cheese, and orange juice [7], more recent examples of such
the mere presence of a rival industry can act as an impetus for
industry campaign have also been found in large ticket items
an industry to invest in generic advertising. Model analyses
including the diamond jewelry. De Beers launched the
and numerical studies suggest that there is a clear interactive
category-driving campaign BFewer, better things,^ in 2008
nature between the two types of advertising decisions under
following the financial crisis. By 2015, the combined annual
inter-industry competitive framework. The generic advertising
budget with another generic campaign BForever Mark^ has
spending of an industry increases as the firms within that
equaled around half of De Beers’ annual promotion spending,
industry are more asymmetric. While a firm’s brand advertis-
$100 million [3].
ing spending increases as the generic advertising of its asso-
Recent advances in the social and technological environ-
ciated industry becomes more effective and that of the rival
ment have led to the appearance of new industries whose
industry becomes less effective. Extensions of the main model
products or services compete with traditional industries that
suggest that there is a first-mover advantage in generic adver-
satisfy similar needs of customers in the market. Examples
tising under inter-industry competition.
include, but are not limited to, electric cars versus cars with
internal combustion engines, solar panel versus the traditional
rooftop, organic versus conventional food, and the
* Yuanfang Lin commission-free house transaction versus the conventional
ylin1@conestogac.on.ca practice involving real-estate agents. Correspondingly, many
industries have been using generic ad campaign to counteract
Sandeep Krishnamurthy the threat from competing industries that are squeezing their
sandeep@u.washington.edu primary market base. Two most recent industry activities of
1
this kind include the Bsolar smear^ campaign funded by
School of Business & Hospitality, Conestoga College, 299 Doon Utility Arizona Public Service meant to turn Arizona
Valley Drive, Kitchener, ON N2G 4M4, Canada
2 1
School of Business, University of Washington, Bothell, 18115 One of the most famous examples is perhaps the BGot Milk?^ campaign by
Campus Way NE, Room UW1-233, Bothell, WA 98011-8246, USA the California Milk Advisory Board.
Cust. Need. and Solut. (2017) 4:18–27
ratepayers against net energy metering [30], and the National
Association of Realtors BGet Realtor®^ campaign targeting
the emerging generations of home buyers, sellers, owners, and
investors [32]. An industry’s generic campaign budget comes
from various sources with an important one being the contri-
butions from companies within the same industry via certain
mechanism (see, for example, [16, 17]). This is how the
Canada Organic Trade Association launched the BThink
Before You Eat, Think Canada Organic^ campaign
which involves the purchase of print and online ads
throughout the year from broad public media such as
CBC, The Globe and Mail, Bfoodie^ periodicals like
the Edible magazines, as well as social networks such
as Facebook and Twitter [28].
Besides contributing to the associated industry’s category-
driving campaign, individual companies also heavily invest in
advertising that promote own brands aiming to win over con-
sumers from other competing brands for a greater market
share. Inside the newly surging organic milk industry,
Horizon Organic’s advertising budget totaled $9.3 million,
$9.5 million, and $10.2 million in the year 2008, 2009, and
2010, respectively. While Silk spent $29.1 million to advertise
in major media in 2009 alone [23].
The main objective of this paper is to understand the rela-
tionship between generic and brand advertising strategies
vis-à-vis inter-industry competition. In particular, we ask the
following research questions: how should an industry respond
to a generic advertising campaign by a rival industry? Will the
generic advertising by one industry or by its rival industry
affect the brand advertising strategy of competing brands
within the focal industry? Does the brand advertising intensity
(and the resulting asymmetry between competing brands)
within an industry affect the generic advertising decision at
the industry level? Will an industry benefit from making ge-
neric advertising prior to its rivals?
To answer these questions, we construct a multi-stage
game-theoretic model with two competing industries each
consisting of two competing brands. In the first stage, each
industry simultaneously decides on the level of generic adver-
tising and in the second stage, firms within each industry
simultaneously make brand advertising decisions. Findings
from our analytical model and numerical studies suggest that
the mere presence of a rival industry can act as an impetus for
an industry to invest in generic advertising. There is a clear
interactive nature between the two types of advertising deci-
sions under inter-industry competitive framework. The gener-
ic advertising spending of an industry increases as the firms
within that industry are more asymmetric. While a firm’s
brand advertising spending increases as the generic advertis-
ing of its associated industry becomes more effective and that
of the rival industry becomes less effective. There is also a
first-mover advantage for inter-industry competition via ge-
neric advertising.
19
The remainder of the paper is organized as follows.
Section 2 discusses relevant literatures and the contribution
of this paper. Section 3 presents the setup of the analytical
model. Section 4 derives the analytical results, presents the
main model findings, and provides further discussions via
numerical studies. Section 5 concludes with summary, mana-
gerial recommendations, and a brief discussion of future re-
search directions. All proofs are delegated to the Appendix.
2 Related Literature
This paper is mainly in the nexus of two streams of literature:
the inter-industry competition and the generic vs. brand ad-
vertising decision. We provide a brief review here before stat-
ing the contribution of this paper.
2.1 Inter-Industry Competition
The game-theoretic literature in marketing generally focuses
on competition within an industry on the four Ps-product (e.g.,
[13]), price (e.g., [21]), distribution (e.g., [18]), and promotion
(e.g., [11]). The effects of one industry’s marketing activities
on other related industries have received lesser attention. Even
when product-level competition among substitutes is studied,
the focus is generally within the industry rather than across
industries (e.g., [21]). This might be due to the conventional
thought that there is no competition between firms in different
industries.
Within the economics literature, inter-industry dynamics
with respect to brand advertising has been of some interest
following the Bgalbraithian hypothesis^ that brand advertising
in one industry might shift demand across industries [12].
However, the general finding has been that Bif advertising is
effective, its major effect is to alter market shares within an
industry rather than to increase the general demand for the
product^ ([31], p. 223). Interest in inter-industry dynamics is
growing, however, as evidenced by recent interest in collusion
among differentiated industries (e.g., [29]) and generic adver-
tising (e.g., [2]).
2.2 Generic versus Brand Advertising
The study of generic advertising in marketing has been in-
creasing in the last decade. Krishnamurthy [15] studies the
fundamental tradeoff between improving market share
through brand advertising (i.e., going for a larger slice of the
pie) and expanding the size of the market through generic
advertising (i.e., expanding the pie itself). A free-riding equi-
librium is found under the independent-contribution case
where the dominant firm in the industry makes all contribu-
tions to the generic advertising campaign while being indif-
ferent to the free riding of lesser firms. And the government-
20
sponsored mechanism would lead to a higher generic adver-
tising budget with an accompanying increase in brand adver-
tising. Krishnamurthy [16] studies a provision-point mecha-
nism to fund generic advertising campaigns. To implement
such mechanism, an industry association sets a target with
the understanding that the campaign will not be conducted if
target contributions are not achieved. This mechanism outper-
forms the simple voluntary contribution mechanism theoreti-
cally and in experiments. Agricultural economists have further
investigated the provision-point mechanism, and it is now
viewed as a credible alternative to the voluntary contribution
mechanism [10, 19, 20]. Bass et al. [2] analyze the equilibrium
generic advertising decisions for a dynamic duopoly. They
confirm the intuition of Krishnamurthy [15] that Bwhen the
asymmetry between the firms increases, there is a greater dif-
ference between their generic advertising contributions.^ (p.
562). However, they find that when a dynamic competitive
model is introduced, Bthe weaker firm’s investment in generic
advertising never goes to zero.^ Qi et al. [24, 25] apply chaos
theory to the model in Krishnamurthy [15] and study both
symmetric and asymmetric systems. They find that there
could be Bcomplex bifurcating and chaotic behavior for the
generic advertising efforts^ and derive the inter-relationships
between brand and generic advertising expenditures.
Despite its obvious impact on competing industries, mar-
keting studies on generic advertising has largely been based
on single-industry framework (e.g., [2, 15, 16, 19, 20]). The
focus has either been on the interaction/coopetition between
brand and generic advertising within an industry (e.g., [2, 5,
15, 22, 25]) or on funding mechanism for the generic adver-
tising campaign (e.g., [6, 16, 19, 20]).2 Roma and Perrone [27]
studies two firms’ simultaneous decisions in generic and brand
advertising within an industry, and the associated price com-
petition with the study focus on the free-riding effects and the
coordination mechanisms of generic campaign. To our best
knowledge, this paper is the first to fill the gap in the literature
by presenting a general model to study the interaction between
generic and brand advertising decisions under inter-industry
competition framework.
3 Model Setup
3.1 Inter-Industry Competitive Structure
We consider two competing industries, indexed by j (=1, 2)
providing substitutable products for a specific need of con-
sumers in the market. Examples include, but not limited to
2 4
There are agricultural economic studies where the focus is on how policy
changes such as the introduction of a specific tax affects industries of substi-
tutable products (e.g., [14]) and how generic advertising changes when pro-
duction is rationed in a competing industry (e.g., [9]).
Cust. Need. and Solut. (2017) 4:18–27
the high-speed railway (CRH) versus major airlines in China
serving the same city routes, or a solar versus conventional
roof top installation. A duopoly setting is incorporated to
model intra-industry competition within each industry j.3
That is, there are two (major) brands/firms, indexed by i (=1,
2) within each industry.4 As in Bass et al. [2], we study the
case where advertising is the dominant marketing mix variable
in market competition.5 Thus, demand for the product of firm i
in industry j is given by the market size of this industry mul-
tiplied by the specific firm’s relative market share. Firms can
help enlarge the market size of the associated industry by
contributing to the generic advertising campaign at the indus-
try level and try to increase their relative market share through
own brand advertising.
3.2 Generic and Brand Advertising
The profit function for firm i of industry j can be written as:


πij ¼ M j G j ; G3− j Dij sij −Gij −Bij ð1Þ
where sij is the per unit margin for firm i in industry j without
any advertising,
Gij is the firm i’s contribution to the associated industry j’s
generic advertising campaign (Gj = Gij + G3 − i , j),
Dij is the market share of firm i in industry j,
Bij is the brand advertising spending of firm i in industry j,
and
Mj is the market size for industry j which is determined by
its initial (/existing) customer base (M0j) and potential expan-
sion gained from the generic advertising of its own (Gj) and
counteracted by that of the competing industry (G3 − j).
Mathematically,
M 0 j þ α jG j
Mj ¼ ; j ¼ 1; 2: ð2Þ
M 0 j þ α j G j þ M 0;3− j þ α3− j G3− j
where αj > 0 is the parameter representing the effectiveness of
industry j’s generic advertising campaign. The market size of
industry j increases with his own investment in generic adver-
tising and decreases with the rival industry’s generic advertis-
ing. If neither industry has any generic advertising, market
size of industry j (Mj) will be determined by his initial cus-
tomer bases in comparison to that of the competing industry.
The formulation in Eq. (2) has a long history in marketing
research literature and has a good empirical validity (e.g., [4,
8]). In order to more closely model, the recently arising com-
petition between traditional and new product industries (e.g.,
3
We investigate in Section 4.4 the asymmetric case where there is an unequal
number of firms within each industry.
A recent example could be iOS versus Android for smartphone operation
system.
5
For example, the CRH ticket price for the Beijing-Shanghai route is reported
to be fairly close to the average discount airfare.
Cust. Need. and Solut. (2017) 4:18–27 21

conventional versus solar top roofing), we make some simpli-
fication without loss of generalities. In particular, we set
M01 = ϕ > 0, while M02 = kϕ with 0 < k ≤ 1. The varying level
of k would help capture different market scenarios of inter-
industry competition. For example, a larger k could represent
the situation where the newly emerging industry 2 has been
quickly establishing customer base thus posing a more serious
threat to the traditional industry 1.6
Within industry j, firm i’s market share (Dij) is determined
by the interaction between the brand advertising of its own
and that of the competing brand in the same industry j
(Bij ∈ [0 , + ∞ ) in dollars). Mathematically,
Aij
Dij ¼
Aij þ A3−i; j
where Aij is the attraction function. Consistent with the litera-
ture (e.g., [15, 27]), we specify the attraction function ( Aij) as:
1=2
Aij ¼ θij Bij
4 Solution and Numerical Analysis
4.1 Equilibrium of Generic and Brand Advertising
Using backward induction, we start with the analysis of firms’
individual profit maximization by making the brand advertis-
ing decisions knowing the industry generic advertising level,
and then move up to the first stage solving for the industry’s
generic advertising decision to maximize total industry profit.
To reduce some computation burden while preserving the es-
sential components of our mathematical model, we make the
further simplification that sij = sj , ∀ i = 1 , 2. In other words,
the two firms within the same industry have equal per unit
ð3Þ margin before advertising. Thus, any potential asymmetry be-
tween the two firms with the industry will be due to the com-
parative effect of the two firms’ brand advertising.8 The fol-
lowing Proposition 1 states the equilibrium advertising strate-
gies of the two competing industries and individual firms
ð4Þ within each industry.

θ θ
where θij > 0 represents the effectiveness of firm i’s brand Proposition 1 Let Y j ¼ 1− ij 3−i; j 2 , λj = αjYjsj,∀i , j = 1 , 2,
advertising within industry j. According to Eq. (3), the brand  ðθij þθ3−i; j Þ 
kα j Y j s j λ2j λ3− j
advertising in the competing industry does not affect the mar- 1.) When 0 < ϕ < min ð1þk Þ2 ; , the equilibri-
ðλ j þλ3− j Þ
2

ket share of firms within the focal industry. This is a reason- um generic advertising level for industry 1 (with initial
able characterization according to the advertising literature λ21 λ2 −ϕðλ1 þλ2 Þ2
(e.g., [2, 15, 16]). market base ϕ) is G*1 ¼ α1 ðλ1 þλ2 Þ2
, while the equilib-
rium generic advertising level for industry 2 (with small-
λ1 λ22 −kϕðλ1 þλ2 Þ2
3.3 Game Structure and the Sequence of Moves er customer base kϕ ) is G*2 ¼ α2 ðλ1 þλ2 Þ2
. And the
equilibrium brand advertising level for firm i of industry
We study a two-stage game where at Stage 1, the two indus- λ j θij θ3−i; j s j
j is B*ij ¼ ;
2ðλ j þλ3− j Þðθij þθ3−i; j Þ
2
tries simultaneously decide their generic advertising spending
(Gj). After knowing each industry’s total generic advertising 2.) Otherwise, the equilibrium generic advertising level for
spending, the individual firms simultaneously decide own industry j (=1, 2) is G j ¼ 0, and the equilibrium brand
brand advertising expenditures (Bij) at Stage 2. Profits are then advertising level for each firm i of industry j is
θij θ3−i; j s j
realized as a result for each firm. We look for subgame-perfect Bij ¼ .
2ð1þk Þðθij þθ3−i; j Þ
2
Nash equilibrium of this game.
We want to emphasize that the primary research focus of
this paper is on the strategic implications of generic advertis- Proposition 1 presents a general market condition under
ing under inter-industry competitive framework. Therefore, which competing industries in equilibrium both invest posi-
we have assumed that at Stage 1, each industry can ensure tive amounts in generic advertising campaigns. Such condi-
that firms contribute to the industry generic campaign after tion is determined by three sets of parameters representing: (i)
the overall level is set by the industry or trade association. the two industries initial customer bases (ϕ , k); (ii) effect of
While we choose not to explicitly model the contribution generic advertising (αj, j = 1, 2), and (iii) effect of brand
mechanism here, existing literatures suggest that mechanisms advertising within an industry (θij, i, j = 1, 2). Note that the
such as provision point can help an industry reach a target effects of brand advertising within industry (θij) enters the
budget (e.g., [16, 27]).7 expression of equilibrium generic advertising (G*j ) in the form
θij θ3−i; j
of Y j ¼ 1− which is part of λ j defined in
ðθij þθ3−i; j Þ
6 2
Following the roof top example, this specification could imply that more and
more residences are adopting the solar panel rooftop as opposed to the tradi-
tional roofing material.
7
An industry can inform its members that no generic campaign will be con-
8
ducted at all if the total amount decided at Stage 1 is not met. The provision Derivations using the general margin parameter (sij) yields qualitatively con-
point literature shows that if an industry sets the provision point at the optimal sistent results, yet the mathematical expression is more complex which makes
level, it constitutes a credible threat leading to contribution. it challenging for readers to following the intuitions.
22 Cust. Need. and Solut. (2017) 4:18–27

Proposition 1. Yj can be thought of as a composite measure of

the asymmetry between two competing brands within an in-
dustry. In particular, as illustrated by Fig. 1, Yj increases as the
magnitude of (θij − θ3 − i , j) gets bigger which implies a greater
asymmetry resulting from the brand advertising effects of the
two brands according to Eqs. (3) and (4).
We resort to an extensive numerical studies to better
present and discuss the intuitions behind the main result
and the managerial implications. Numerical values of
equilibrium generic (Gj) and brand (Bij) advertising levels
are computed by assigning a wide ranges of numerical
values to the three sets of parameters listed above that
jointly determine the equilibrium condition specified in
Proposition 1. Our full numerical analyses simulate a va-
riety of market scenarios including different sizes of in-
dustry 2′s initial customer base in comparison to industry
Fig. 1 Asymmetry between Two Brands within Industry 1 Measured by
1 (k), the effectiveness of industry 1’s generic advertising
Y 1 ¼ 1− ðθ θ11þθθ21 Þ2 . (Plot generated by assigning numerical values
(α1) in comparison to that of industry 2 (α2), and the 11 21
θ11 = 0.1 and varying θ21 from 0.1 to 1. Graphic pattern persists under
varying degrees of asymmetry between two brands within different numerical parameter values)
each industry (θij − θ3 − i , j ). Table 1 summarizes the nu-
merical results from one scenario where industry 2’s ini-
4.2 Impact of Initial Customer Base Parameters (ϕ, k)
tial market base is fairly close to that of industry 1
(k = 0.9) which suggests an intensive inter-industry com-
The equilibrium expression of industry 2’s generic advertising
petitive environment.9 Setting the effectiveness of indus-
(G*2 ) reported in Proposition 1 indicates that the smaller in-
try 2’s generic advertising (α2) at a constant level, Table 1
dustry 2’s initial customer base is in comparison to that of
summarizes the numerical values of the two industries’
industry 1 (measured by smaller kϵ(0 , 1]), the greater will its
generic advertising (G1 , G2 ), as well as one focal firm
generic advertising be. This is illustrated by Fig. 2. This im-
(from each industry)’s brand advertising in equilibrium
plies that generic advertising is an important strategic tool for
(B11 , B12 ), by ranging the effectiveness of industry 1’s
the new product industry 2 especially when its initial customer
generic advertising (α1) from lower than to higher than
base is still much smaller in comparison with the stronger
that of industry 2. Furthermore, as shown in Table 1, the
traditional industry 1.
numerical simulation considers four cases of the brand
As for industry 1 who has a larger initial customer base (ϕ),
competitive intensity within each industry: (a) there is
detailed analysis in the Appendix indicates that even if the
one dominant brand in each industry (θij − θ3 − i , j = 0.8,
competing industry 2 does not have generic campaign, indus-
∀i , j = 1 , 2,recall Figure 1 for the measurement of asym-
try 1 will still invest in generic campaign if his initial customer
metry within industry); (b) there are two symmetric
base (without advertising) is sufficiently small. In particular,
brands in industry 1 (θ 11 − θ21 = 0) while there is one
dominant brand in industry 2 (θ12 − θ22 = 0.8); (c) there kα1 Y 1 s1
is one dominant brand in industry 1 (θ 11 − θ 21 = 0.8), ϕ< ð5Þ
ð1 þ k Þ2
while there are two symmetric brands in industry 2 (θ12
− θ22 = 0); and (d) there are two symmetric brands in each Note that the above inequality is more likely to be satisfied
industry (θij − θ3 − i , j = 0). Summarizing findings from the as k ∈ (0 , 1] increases which could imply the situation where
extensive numerical study allows us to illustrate the im- industry 2’s market base is becoming more and more close to
pact of key parameters and the interactive nature of that of industry 1 hence posing a greater threat.
these two types of advertising strategies under inter- In summary, the above analyses indicate that the mere pres-
industry competitive framework. We report the findings ence of another industry providing substitutable product
from the numerical studies in the following two would trigger a generic advertising campaign by the focal
subsections. industry. Furthermore, such incentive is stronger for an indus-
try whose initial customer base is at the disadvantageous state
compared to the rival industry (for example, a newly arising
9
We do not include all result tables from our extensive numerical studies in product category to challenge an existing traditional industry).
this manuscript due to the space limit. They are available upon request from
the authors. The patterns are qualitative persistent from the numerical results of This is consistent with the literature (e.g., [17]) which suggests
all scenarios. that generic advertising plays a critical role for industries at the
Cust. Need. and Solut. (2017) 4:18–27 23

Table 1 Numerical values of equilibrium generic and brand advertising

ϕ = 0.2, k = 0.9, α2 = 5, s1 = 1, s2 = 1
G*1 G*2 B*11 B*12
Industry 1’s generic ad effect Brand ad effects within industry 1 Brand ad effects within industry 2

α1 = 2 θ11 = 0.9 θ21 = 0.1 θ12 = 0.9 θ22 = 0.1 0.0857 0.1497 0.0129 0.0324
α1 = 5 θ11 = 0.9 θ21 = 0.1 θ12 = 0.9 θ22 = 0.1 0.1875 0.1915 0.0225 0.0225
α1 = 10 θ11 = 0.9 θ21 = 0.1 θ12 = 0.9 θ22 = 0.1 0.1822 0.1662 0.0300 0.0150
α1 = 15 θ11 = 0.9 θ21 = 0.1 θ12 = 0.9 θ22 = 0.1 0.1573 0.1346 0.0338 0.0113
α1 = 2 θ11 = 0.5 θ21 = 0.5 θ12 = 0.9 θ22 = 0.1 0.0398 0.1337 0.0310 0.0338
α1 = 5 θ11 = 0.5 θ21 = 0.5 θ12 = 0.9 θ22 = 0.1 0.1458 0.1894 0.0565 0.0247
α1 = 10 θ11 = 0.5 θ21 = 0.5 θ12 = 0.9 θ22 = 0.1 0.1563 0.1779 0.0778 0.0170
α1 = 15 θ11 = 0.5 θ21 = 0.5 θ12 = 0.9 θ22 = 0.1 0.1405 0.1506 0.0890 0.0130
α1 = 2 θ11 = 0.9 θ21 = 0.1 θ12 = 0.5 θ22 = 0.5 0.1002 0.1290 0.0147 0.0842
α1 = 5 θ11 = 0.9 θ21 = 0.1 θ12 = 0.5 θ22 = 0.5 0.1854 0.1498 0.0247 0.0565
α1 = 10 θ11 = 0.9 θ21 = 0.1 θ12 = 0.5 θ22 = 0.5 0.1681 0.1190 0.0319 0.0365
α1 = 15 θ11 = 0.9 θ21 = 0.1 θ12 = 0.5 θ22 = 0.5 0.1405 0.0908 0.0353 0.0269
α1 = 2 θ11 = 0.5 θ21 = 0.5 θ12 = 0.5 θ22 = 0.5 0.0531 0.1171 0.0357 0.0893
α1 = 5 θ11 = 0.5 θ21 = 0.5 θ12 = 0.5 θ22 = 0.5 0.1475 0.1515 0.0625 0.0625
α1 = 10 θ11 = 0.5 θ21 = 0.5 θ12 = 0.5 θ22 = 0.5 0.1467 0.1307 0.0833 0.0417
α1 = 15 θ11 = 0.5 θ21 = 0.5 θ12 = 0.5 θ22 = 0.5 0.1273 0.1046 0.0938 0.0313

(Note: Numerical results for other scenarios of k ∈ (0 , 1] are available upon request, which suggest the similar pattern with regard to the impact of key
parameters on the equilibrium generic and brand advertising levels as discussed in Sections 4.2 and 4.3)

starting/declining stage normally characterized by relatively generic advertising and firm’s brand advertising which are
small customer base. confirmed through analytical derivations. We highlight the
main findings in the following two Corollaries.

4.3 Inter-Relation Between Generic and Brand Corollary 1

Advertising Effects (αj, θij)
 
The numerical study indicates that the sign for ∂G*j =∂α j is
ambiguous, which implies that under inter-industry competi-
tion, equilibrium level of an industry’s generic advertising is
not solely driven by its own effectiveness. Rather, the numer-
ical study results suggest clear interaction between industry’s
Fig. 2 Impact of initial customer base on industry 2’s generic advertising
level. (Plot generated by assigning numerical values
ϕ = 0.2 , α1 = 5 , α2 = 5, θ11 = 0.9 , θ21 = 0.1, and θ12 = 0.5 , θ21 = 0.5.
The same graphic patterns are found under different numerical
parameter values)
∂B*ij ∂B*ij
> 0; < 0; ∀i; j ¼ 1; 2:
∂α j ∂α3− j
Corollary 1 states that a firm’s brand advertising spending
increases in equilibrium as the generic advertising of the as-
sociated industry becomes more effective. On the other hand,
when the generic advertising of the rival industry gets more
effective, the brand advertising levels for firms within the
focal industry will actually decrease. Figure 3 illustrates such
patterns using numerical examples. Firm 1 of industry 1’s
brand advertising (B11) increases as the generic advertising
of industry 1 gets more effective which is represented by an
increase in the magnitude of α1. On the contrary, Firm 1 of
industry 2’s brand advertising (B12) decreases as the generic
advertising of the rival industry 1 gets more effective.
The intuition of Corollary 1 comes from the strategic con-
sideration between the primary demand expansion and the
market share allocation under different scenarios of inter-
industry competition when a firm allocates an overall budget
for these two different types of advertising. For all the firms
within the same industry j, as this industry’s generic advertis-
ing gets more effective, a bigger Bpie^ is realized for this
industry. Each firm within the industry has a greater incentive
24
Fig. 3 a Impact of generic advertising effectiveness (of own industry) on
brand advertising. b Impact of generic advertising effectiveness (of Rival
Industry) on Brand Advertising. (Plots generated by assigning numerical
values ϕ = 0.2 , α2 = 5, θ11 = 0.9 , θ21 = 0.1, and θ12 = 0.5 , θ21 = 0.5.
Graphic patterns persisit under different numerical parameter values)
of using brand advertising to grab a larger slice from the en-
larged pie. On the contrary, if the competing industry’s generic
advertising gets more effective, the market size of the focal
industry is at the risk of getting smaller, each firm within the
focal industry shall then shift to contributing more to the
industry’s generic advertising which will help drive up the
primary demand for the entire industry. Consequently, the
spending on the firm’s own brand advertising will decrease
due to the overall budget constraint. This finding provides
important managerial guidance for marketers when making
decisions on these two types of advertising that have clearly
different nature and strong connection with each other.
Corollary 2
∂G*j


 > 0; ∀ θij −θ3−i; j > 0; i; j ¼ 1; 2:
∂ θij −θ3−i; j
Corollary 2 implies that the equilibrium generic advertising
spending of an industry increases, as there is a greater level of
asymmetry between the two competing firms within the in-
dustry which is measured by the difference of brand advertis-
ing effectiveness in our model (recall Eqs. 3 and 4 in the
model setup). This result is illustrated by Fig. 4 where along
Cust. Need. and Solut. (2017) 4:18–27
with other parameter values, the brand advertising effect of
firm 1 within industry 1 (θ11) is set to be constant at 0.9.
Allowing the brand advertising effect of firm 2 within industry
1 (θ21) to take values ranging from 0.1 to 0.9, Fig. 4 plots how
industry 1’s generic advertising (G1) changes with different
degrees of asymmetry between the two firms. According to
Fig. 4, (G*1 ) is the largest when θ11 − θ21 is the biggest within
the ranges of numerical values.
The intuition of Corollary 2 can be further illustrated by
Fig. 5 which is a 3D plot of G*1 with (θ11 , θ21) being the X-Y
axes. The black platform on Fig. 5 represents the value of G*1
when θ11 = θ21, which is clearly below the curved surface
representing the value of G*1 when θ11 ≠ θ21. The graphic pat-
tern illustrated by Fig. 5 is consistent with that of Fig. 4, both
suggesting that the generic advertising level is higher for in-
dustry with a greater asymmetry between competing firms’
brand adverting effects within industry.
Equations 3 and 4 in the model setup suggest that a firm’s
relative market share is affected by the brand advertising of the
competing brands within the same industry. As the difference
between θij and θ3 − i , j increases, a greater asymmetry exists
for the market share distribution within the industry. Corollary
2 thus implies that generic advertising is more likely to be
observed in industries where market share is highly asymmet-
ric among competing brands. This is aligned with the existing
literature findings that dominant firms (e.g., with much greater
market share) are likely to contribute to the industry generic
advertising even with fringe firms’ free riding (e.g., [2, 15]).
4.4 Model Extensions
We consider several extensions of the main model to test the
robustness of our findings and better understand the driving
forces behind them. We first explore a scenario where one
industry in the market has a stronger brand that receives dis-
proportionate benefits from market expansion through generic
advertising (e.g., [7]). Next, we relax the symmetric setup in
the main model by studying the competition between one
industry which has a monopoly brand and the other industry
which consists of duopolists. Advertising equilibrium from
the two-stage game yields qualitatively consistent results as
in the main model with only some modification in the param-
eter conditions.10
We modify the original model setup (as in Section 3) to
investigate the generic advertising decision of an industry pri-
or to or after the decision made by the rival industry. Without
loss of generality, we assume that industry 1 moves first in
deciding generic advertising campaign. Knowing industry 1’s
generic advertising decision, industry 2 then decides its gener-
ic advertising campaign. This is followed by the simultaneous
10
Detailed analyses of these two extensions are available from the authors
upon request.
Cust. Need. and Solut. (2017) 4:18–27
Fig. 4 Impact of brand asymmetry on industry generic advertising. (Plot
generated by assigning numerical values ϕ = 0.2 , α1 = 2 , α2 = 5 and
θ11 = 0.9 , θ12 = 0.9 , θ22 = 0.1. Graphic pattern persists under different
numerical parameter values)
brand advertising decisions of all firms across the two indus-
tries. Through backward induction, we derive the equilibrium
generic advertising levels for the two industries and compare
them with those in the main model. Results of the comparison
are summarized in the following Proposition 2.
Proposition 2 With Yj defined in Proposition 1,
1) The second mover (i.e., industry 2) in equilibrium spends
less on the industry generic campaign than in the main
model of simultaneous generic advertising decision;
2) The first mover (i.e., industry 1) in equilibrium spends
more on the industry generic campaign than in the main
model of simultaneous decisions in generic advertising
ifα1 > YY 21 ss21 α2 .
8 tiveness which in turn suggests asymmetric distribution of
6 market shares. Finally, we find that the equilibrium generic
G1 4 advertising decision is sensitive to the sequence of moves
2 mover advantage in generic advertising decision under inter-
0 industry competition.
0.0 0.0
0.5 0.5
theta_21
theta_11
1.0 1.0
Fig. 5 Impact of brand asymmetry on industry generic advertising. Note:
the (horizontal) X-Y axes represent θ11, θ21 respectively, both running
from 0 to 1. The (vertical) Z axis represents the numerical value of G*1 .
The black platform represents the value of G*1 when θ11 = θ21
25
Proposition 2 implies that there is a first-mover advantage
when it comes to the generic advertising decision under inter-
industry competition. Industry 1, by moving first in generic
advertising and forcing the rival industry to react as opposed
to acting simultaneously, could enjoy an industry market size
to his greater benefits. This finding provides important sup-
port to the observed industry practices such as the persistently
aggressive campaign on organic awareness organized by the
Canada Organic Trade Association in recent years [28].
5 Conclusion and Disscussions for Future Research
This paper adds to the advertising literature by introducing the
inter-industry competitive framework to study the interaction
between two characteristically different advertising strategies,
i.e., generic versus brand advertising. Firms within an industry
compete for market share using brand advertising and indus-
tries compete for market size using generic advertising.
Introducing this higher degree of complexity allows us to
make the following theoretical contributions. Firstly, we iden-
tify specific market conditions under which the presence of a
rival industry triggers an industry to conduct generic advertis-
ing. Secondly, we demonstrated and discussed strong connec-
tion between generic advertising for inter-industry competi-
tion and brand advertising for intra-industry competition. If
the generic advertising conducted by an industry is more ef-
fective, greater brand advertising will result within that same
industry. If the generic advertising conducted by a rival indus-
try is more effective, firms of the focal industry will reduce
spending on the brand advertising and likely shift to contrib-
uting to industry generic campaign. An industry will be more
likely to conduct generic advertising if the firms within that
industry differ considerably in their brand advertising effec-
between competing industries. In particular, there is a first-
Our study contributes to marketing practice in several im-
portant ways. Most importantly, we recommend that industry
practitioners integrate the strategic decision of generic adver-
tising under inter-industry competition with firms’ brand ad-
vertising strategy within each industry. Such consideration has
become increasingly important given the large number of ex-
amples observed in practice where traditional industries’ mar-
ket base are being challenged by newly arising product cate-
gories that can satisfy the similar needs of customers in the
market. When there is strategic consideration between con-
tributing to industry generic campaign and investing in own
brand advertising, it is important for managers to observe the
effectiveness of rival industry’s generic advertising campaign
26 Cust. Need. and Solut. (2017) 4:18–27

and track the degree of asymmetry within industry using
criteria such as brand advertising effectiveness or market share
distribution. On the other hand, if managers are contributing to
a generic campaign that is effective in expanding market size
for the industry, they must fully expect the brand advertising
intensity to go up. And it could also be strategically beneficial
for an industry or trade associations to engage in generic ad-
vertising earlier than its rival industry.
Our model has a few limitations which also point to the
directions of future research. First, this is a static model in the
spirit of Krishnamurthy [15, 16]. We have investigated one
variation where industries make generic advertising decisions
sequentially. A fully dynamic version of this model is definite-
ly an interesting direction to pursue. Second, like the existing
studies on generic advertising (e.g., [2]), we have not included
price as a decision variable. This is a reasonable assumption
since our focus is on inter-industry competition, and price is
unlikely to affect market size dynamics. The interaction of
generic and brand advertising with the other three P’s of mar-
keting mix (e.g., product differentiation, pricing [26], and
channel distribution) is another important and interesting area
for future research. Finally, a thoroughly designed lab study11
could provide behavior verifications for the predictions of our
analytical model as well as testing the contribution mechanism
that ensures individual firms’ contributions to the industry
generic campaign under inter-industry competition.
Appendix
Proof of Proposition 1
Based on the model setup in Section 3, profit function for firm
i of industry j can be written as:

 1=2
!
M oj þ α j G j θij Bij
πij ¼ S j −Gij −Bij ; with i; j ¼ 1; 2: ð6Þ
M 0 j þ α j G j þ M 0;3− j þ α3− j G3− j 1=2
θij Bij þ θ3−i; j B3−i; j
1=2

Equilibrium brand advertising levels at the second stage of industry does not conduct any generic advertising. Suppose
the game are obtained from simultaneously solving the first- G2 = 0, straight profit maximization yields the optimal generic
∂πij
order conditions ∂Bij ¼ 0 and check the negative semi- advertising level for industry 1 as:
definiteness of the second-order Hessian matrix, which results
in pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
0 kϕα1 Y 1 s1 −ð1 þ k Þϕ
G1 ¼ ð9Þ
θij θ3−i; j M j s j α1
Bij ¼
2 ð7Þ
2 θij þ θ3−i; j
and the above (9) is positive as long as 0 < ϕ < kα1 Y 1 s1
ð1þk Þ2
(con-
Substitute M01 = ϕ, M02 = kϕ and (7) back to (6), sum over dition ii). Similarly, we can derive the condition for G2 > 0 if
0

the profit functions of the two firms within each industry G1 = 0.

yields the industry total profit function: Combing conditions (i) and (ii) results in the parameter
 condition for part 1 of Proposition 1. Substituting G*j back to
ϕ þ α1 G1
π1 ¼ Y 1 s1 −G1 ; π2 (7) yields the equilibrium brand advertising levels reported in
ϕ þ α1 G1 þ kϕ þ α2 G2
part 1 of Proposition 1. Finally, the feasibility conditions are

kϕ þ α2 G2 satisfied by substituting the equilibrium generic-brand adver-
¼ Y 2 s2 −G2 ð8Þ
ϕ þ α1 G1 þ kϕ þ α2 G2 tising levels back to the industry profit functions and found
 
θij θ3−i; j
that π*j G*j ; B*ij > 0. Derivation of brand advertising levels
where Y j ¼ 1− , ∀i , j = 1 , 2.
ðθij þθ3−i; j Þ
2
for part 2 of Proposition 1 follows by substituting G*j ¼ 0 into
∂π j
Solving for ∂G j ¼ 0 and check the negative semi- (7) for profit maximization with respect to Bij. This completes
definiteness of the second-order Hessian matrix yields the the proof. ■
expressions of G*j as in part 1 of Proposition 1. G*j > 0 as
λ21 λ2
long as 0 < ϕ < ðλ1 þλ2 Þ2
(condition i) with λj = αjYjsj , j = 1 , 2.
11
The experimental setup used by Krishnamurthy [16] could potentially be
We next check if an industry would still have incentive to expanded into an industry-by-firm between subject design for a laboratory
invest positive amount for generic campaign when its rival study testing the predictions from the analytical models of this paper.
Cust. Need. and Solut. (2017) 4:18–27 27

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