TITLE:
Optimal Investment in Advertising and Quality to Mitigate a Possible Product-Harm Crisis
AUTHORS:
Francesco Moresino
KEYWORDS:
Optimal Investment, Product-Harm Crisis, Stochastic Optimal Control, Game Theory, Advertising, Quality
JOURNAL NAME:
Open Journal of Business and Management,
Vol.12 No.3,
April
22,
2024
ABSTRACT: Product-harm crises are the nightmare of any firm due to their disastrous effects on sales and image. These crises lead to loss of consumer trust, severe damage to brand reputation, extensive negative media coverage, legal and financial repercussions, decline in market share, negative impact on investor confidence, and increased regulatory scrutiny. Overall, product-harm crises pose significant challenges to companies, emphasizing the critical importance of effective risk management and crisis preparedness. The present paper proposes a new model to compute the optimal investment in quality and advertising in order to reduce the probability of occurrence of a possible product-harm crisis and mitigate its effects. This method uses stochastic control theory and can be used for both tangible products and services. An extension of this method is also proposed in order to take endogenously competition. This extension uses a game theoretical approach.