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
Personalize Your Marketing Using 15 AI-Powered Prompts

Personalize Your Marketing Using 15 AI-Powered Prompts

Personalization has undoubtedly become one of the key elements that marketers shouldn’t ignore or underestimate any longer. With consumers increasingly expecting tailored experiences, the ability to customize...

Georges Fallah
Georges Fallah 30 May 2024
Read more
How to Review a Website — A Guide for Beginners

How to Review a Website — A Guide for Beginners

A company website is crucial for any business's digital marketing strategy. To keep up with the changing trends and customer buying behaviors, it's important to review and make necessary changes regularly...

Digital Doughnut Contributor
Digital Doughnut Contributor 25 March 2024
Read more
Craft the Winning Experience: A Deep Dive into Customer Experience (CX)

Craft the Winning Experience: A Deep Dive into Customer Experience (CX)

Understanding Customer Experience (CX) is crucial for business success. This blog explores CX, trending questions, and the Future of CX. Learn how to craft exceptional experiences that keep customers coming back for...

Sukhdev Singh
Sukhdev Singh 5 June 2024
Read more
7 Reasons Why Social Media Marketing is Important For Your Business

7 Reasons Why Social Media Marketing is Important For Your Business

In the past two decades social media has become a crucial tool for marketers, enabling businesses to connect with potential customers. If your business has yet to embrace social media and you want to know why it is...

Sharron Nelson
Sharron Nelson 29 February 2024
Read more
The Impact of New Technology on Marketing

The Impact of New Technology on Marketing

Technology has impacted every part of our lives. From household chores to business disciplines and etiquette, there's a gadget or app for it. Marketing has changed dramatically over the years, but what is the...

Alex Lysak
Alex Lysak 3 April 2024
Read more