Optimal advertisement budget allocation and coordination in luxury fashion supply chains with multiple brand-tier products

Advertisement is critical in luxury fashion supply chains. In this paper, we analytically explore the optimal advertisement budget allocation strategy and coordination challenge when there are multiple brand-tier products in the market. In the basic model, we focus our analyses with respect to different risk attitudes that the luxury fashion brand takes and the coordination mechanisms. We show that irrespective of risk attitudes of the luxury fashion brand, the optimal advertisement strategy is a polarized strategy. We derive the coordination mechanisms to overcome the double marginalization effect for each risk attitude case. In the extended model, with the market share considerations, the optimal advertisement strategy is derived and is shown to be no longer polarized in general.