Growth Dynamics in New Markets

THE EFFECT OF ADVERTISING SPENDING

4.1 Introduction

This chapter introduces the effects of advertising on your customers. Section 4.2 defines the context and assumptions under which advertising is considered. Then, you will discover how advertising influences the purchasing decisions of Potential customers and what the consequences for NewTel’s Accumulated purchases and Accumulated customer‐months are. In Section 4.3, our initial scenario assumes a fixed amount of advertising spending on marketing mobile phones with an unlimited life cycle duration. Section 4.4 addresses a product with a limited life cycle duration. This section considers, in a second scenario, the cumulative effects of a given amount of advertising spending in a particular month and compares the effects on products with unlimited and limited life cycle durations. From a methodological point of view, you will learn how to use switches and test inputs in a simulation model to quickly experiment with different scenarios and compare the resulting behaviours.

4.2 Turning the attention of Potential customers to a product

In Chapter 2, you gained a general understanding of how mobile telephony can spread in Plutonia. As it turned out, by means of word‐of‐mouth dynamics you could acquire all Potential customers in Plutonia, i.e. they became Current customers of NewTel in approximately six months. One question resulting from the simplified conceptualization of the diffusion process in Chapter 2 was about the life ...