Chapter 15, Problem 1E

a)

To determine

To Explain: The effect of information-sharing objective, when all details of co-op advertising are agreed to up front in franchise market, supposing that there is an enhanced effectiveness of cooperative advertising that occurs under the circumstances that the distributor shares on-the spot information with its superior, about the current trends in market-place.

Answer to Problem 1E

The distributor and the manufacturer are mutually benefited by sharing on-the spot information about the market conditions and sales.

Explanation of Solution

In order to reach their target markets, cooperative advertisement is a very cost-effective advertisement strategy, for the distributors, retailers or manufacturer, benefiting all. In this method, the manufacturer, along with its retailer or wholesale dealer, pool in a part of their financial resources for advertising the product, wherein the cost of the same is shared between the parties.

When there is an enhanced effectiveness of cooperative advertising occurs if the distributor shares on-the spot information to its superior about the current trends of market place with the manufacturer, wherein it has been agreed upon to up front all the details of cooperative advertising in the franchise document, then it will enable them to pursue maximizing of their benefits.

Economics Concept Introduction

Introduction: The advertising strategy of retailers, in which specific mention about the manufacturer is also included, is called cooperative advertising. In this case, the cost of advertisement is either borne fully by manufacturer, or shares the cost of the advertisement with the retailer.

b)

To determine

To Explain: The effect of information-sharing objective, when advertising is independently pursued by the manufacturer and retail distributor, supposing that there is an enhanced effectiveness of cooperative advertising that occurs under the circumstances that the distributor shares on-the spot information with its superior, about the current trends in market-place.

Answer to Problem 1E

When advertisements are done independently by the manufacturer and retailer, sharing of information by the retailer might be beneficial only for the manufacturer and not the retailer.

Explanation of Solution

In order to reach their target markets, cooperative advertisement is a very cost-effective advertisement strategy, for the distributors, retailers or manufacturer, benefiting all. In this method, the manufacturer, along with its retailer or wholesale dealer, pool in a part of their financial resources for advertising the product, wherein the cost of the same is shared between the parties.

When the advertisement is independently pursued by the manufacturer and distributor, then sharing of information will be beneficial only to either of the party, and there won’t be any mutual benefits. As information about market conditions play a key role in advertisement, it is better not to pass on such information to manufacturer by the retailer, as the retailer might not be benefited with this.

Economics Concept Introduction

Introduction: The advertising strategy of retailers, in which specific mention about the manufacturer is also included, is called cooperative advertising. In this case, the cost of advertisement is either borne fully by manufacturer, or shares the cost of the advertisement with the retailer.

c)

To determine

To Explain: The effect of information-sharing objective, when there is cooperative advertising allowances rebated from the franchise fees of the distributor, supposing that there is an enhanced effectiveness of cooperative advertising that occurs under the circumstances that the distributor shares on-the spot information with its superior, about the current trends in market-place.

Answer to Problem 1E

A rebate given by the manufacturer on the franchise fee of retailer can be considered as a way of sharing the costs of cooperative advertisement, and hence sharing of information about market conditions will help both the parties mutually.

Explanation of Solution

In order to reach their target markets, cooperative advertisement is a very cost-effective advertisement strategy, for the distributors, retailers or manufacturer, benefiting all. In this method, the manufacturer, along with its retailer or wholesale dealer, pool in a part of their financial resources for advertising the product, wherein the cost of the same is shared between the parties.

When a rebate is given on the franchise fees of the distributor, it becomes equivalent to sharing of cost of cooperative advertisement and hence sharing of on-the spot information about market conditions will mutually help both the retailer as well as the manufacturer.

Economics Concept Introduction

Introduction: The advertising strategy of retailers, in which specific mention about the manufacturer is also included, is called cooperative advertising. In this case, the cost of advertisement is either borne fully by manufacturer, or shares the cost of the advertisement with the retailer.