Transcript Advertising Exercise

LONG DISTANCE TELEPHONE SERVICE
ADVERTISING CHOICES
Your team plans and implements marketing for a leading provider of long distance services. Each
month, you make decisions regarding the advertising strategy that you will use. As you know, this
industry is crowded with contenders for market share.
You may choose from two general marketing approaches: highlight your company’s positive
attributes, or advertise negative aspects of your leading competitor’s service. Your primary
competitor also makes this ongoing choice. If both of you avoid negative advertising, both
companies net about $1 million each period. However, if one company runs negative ads while the
other does not, the company that advertises gains $2 million and the company that does not run
negative ads loses $3 million. If both companies run negative ads, both of them lose $2 million to
other long distance providers.
Because people tend to make more calls in some months than in others, the profit and loss values
resulting from advertising decisions are doubled in September and quadrupled in December.
Further, there is a trade show in September, at which one of your team members may talk with a
representative of the other marketing team.
Your company’s fiscal calendar ends in June, so we begin then. The following table summarizes
payoff possibilities.
Run neg. ads?
Yes/no
No/yes
Yes/yes
No/no
Payoffs
+2/-3
-3/+2
-2/-2
+1/+1
Following initial consultation with team members, you will have three
minutes to decide whether or not to run negative ads in each time period.
CheapChat and TeleTalk representatives will have five minutes to meet at
the trade show. You may record your decisions, profits, and/or losses
below.
Date/Event
CheapChat ad
TeleTalk ad
July ads
Y N
Y N
August ads
Y N
Y N
September ads (payoff x 2)
Y N
Y N
Trade Show
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October ads
Y N
Y N
November ads
Y N
Y N
December ads (payoff x 4)
Y N
Y N
Total profit/loss
CheapChat $
TeleTalk $
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