Article

Vaggelis Pantidos
Vaggelis Pantidos 4 February 2014

What are some of the ways Game Theory is used in marketing, advertising, and branding?

Game theory has obvious uses in competitive analysis and strategy. That being said, I think we've only begun to scratch the surface in how much and how deep game theory is used. Companies have to come up with a strategy where the worst case scenario for them is still acceptably profitable and best case scenario for their competitor is still less than positive.

game theory in advertising


Game theory has obvious uses in competitive analysis and strategy.  That being said, I think we’ve only begun to scratch the surface in how much and how deep game theory is used.

Companies have to come up with a strategy where the worst case scenario for them is still acceptably profitable and best case scenario for their competitor is still less than positive.

  1. Consider a market with two major players- A and B.
  2. Every action of A to market its product comes with the intention of harboring profits – be it increasing prices to drive profit per unit, or decreasing prices to drive sales volumes or introduction of a new product to capture the untapped market.
  3. Market being a closed one, A’s gain will mean B’s loss – B is bound to suffer because of any move that A takes to do better in the market. Hence, B responds with a counter campaign.

This is a classic Nash equilibrium situation where any action directed with a particular outcome in mind, drives reaction from competitors and hence gives less than expected (sometimes unexpected) results. Most of the times, B’s reaction to a particular marketing exercise are already anticipated by A’s market intelligence team, and of all the alternatives that are present, one that acceptably meets A’s objectives in the worst case scenario and pushes back B (in short term generally – in long term, market balances out) is accepted.

In marketing, one obvious use of game theory is in signalling.

Suppose there are two firms producing same kind of products but with different qualities. Game theory can help :

  1. in deciding whether the firm with good quality product should opt for a certification or standard or any other signal to the market.
  2. in answering whether the signal will help it gain better payoffs (after considering the cost).
  3. in understanding whether the low quality product firm can bluff or not by sending the same signal. If bluffing is not possible it makes sense for the firm to invest on certification and send the signal.

Another example is of business schools. Business schools send a signal and this helps in branding of the graduates. For this signal to work effectively, game theory can help in deciding the cost (time, money, effort) incurred to send the signal (earn a b school degree) so that only high performers can send the signal and bluffing is not possible by low performers.

 

Please login or register to add a comment.

Contribute Now!

Loving our articles? Do you have an insightful post that you want to shout about? Well, you've come to the right place! We are always looking for fresh Doughnuts to be a part of our community.

Popular Articles

See all
Digital Marketing Vs. Traditional Marketing: Which One Is Better?

Digital Marketing Vs. Traditional Marketing: Which One Is Better?

What's the difference between digital marketing and traditional marketing, and why does it matter? The answers may surprise you.

Julie Cave
Julie Cave 14 July 2016
Read more
14 Amazing Examples Of Brands Killing It With Facebook Ads

14 Amazing Examples Of Brands Killing It With Facebook Ads

How do you design the perfect Facebook ad that converts? A lot of people will start throwing money at Facebook, but not see any success. This comes either because they don’t have a proper strategy for their Facebook ads or their ads are not well designed. But for those brands which have a good strategy and work hard to test and refine their advertising, Facebook ads can generate huge profits. And we’ve found 14 of such examples.

Luisana Cartay
Luisana Cartay 11 December 2017
Read more
4 Important Digital Marketing Channels You Should Know About

4 Important Digital Marketing Channels You Should Know About

It goes without saying that a company can't do without digital marketing in today's world.

Digital Doughnut Contributor
Digital Doughnut Contributor 5 November 2014
Read more
Top 10 B2B Platforms to Help your Business Grow Worldwide

Top 10 B2B Platforms to Help your Business Grow Worldwide

Although the trend of a Business to Business portal is not new but the evolution of technology has indeed changed the way they function. Additional digital trading features and branding has taken the place of traditional outreach methods to get in touch with targeted buyers or sellers.Here are some of the best and fastest growing global B2B platforms that are helping thousands of businesses in the world to grow and reach their international and local clients.

Salman Sharif
Salman Sharif 7 July 2017
Read more
Collection Of The Best Email Testing Tools Online

Collection Of The Best Email Testing Tools Online

Don’t be afraid of email testing. There are many free or freemium tools online that can help you with testing your SPAM score, deliverability and even the rendering of your email. We feature 30 email testing tools in this article. Check out the complete list!

Roland Pokornyik
Roland Pokornyik 31 October 2016
Read more