Vithala R. Rao Cornell University UTD-FORMS Conference, /15/20091

Price and advertising effects incorporated in the diffusion model (GBM). Some analysis of the relationship via simulation (the logic for Equation (7) not clear to me. Why not a bivariate model? Empirical analysis for three products: 2/15/20092 Product category Price effect with only Price Price effect with advertising Stated Reasons Room-air conditioners Not significantSignificantInverted U- relationship Color TVsSignificant Strong relationship between P and A Clothes dryers Not significant P and A are independent

1. Utility approach to diffusion analysis 2. Dealing with trends in price and advertising 3. Brand versus product 4. Differences across the products in the empirical study 5. Role of price and advertising 6. A Suggestion 2/15/20093

Bass Model is an aggregate model for a new product that is not developed from individual utility (dynamic) premises. Opportunity exists to develop such a model. I think that it will enable addressing the question raised in the paper in a superior manner. One can set up a choice model with time-varying coefficients at the individual level and then seek aggregation. The X-variables can include price and advertising as attributes. 2/15/20094

Would have like to see time trend removed from price and advertising and then estimated the effects in the current model. The implications of such analysis will be more appropriate. 2/15/20095

The paper could have specified the context well. Does the paper refer to a brand or a product category? Are aggregate price and advertising the relevant variables to consider? Implications will be different. If it is the latter, several issues need to be addressed in measuring prices and advertising over time. The competitive strategies of firms as they enter the industry need to be taken into account; e.g., price skimming strategy for the first entrant and a different strategy for the follower(s). Similar concerns for advertising strategies. These will have an impact on the price-advertising correlations. 2/15/20096

The authors could say why the effects differed across the three categories. Are they due to the aggregate analysis (not at the brand level)? Do the two marketing mix variables affect the coefficients p and q directly? Is this aspect is considered in this model? More primitive work may be needed rather than use the GBM. 2/15/20097

Price has two roles – informative and allocative. This is particularly true for a new product. Advertising can deemed to have primarily one role – informative ( not highlighting the persuasive role). Not clear what the correlation of price and advertising refer to ? If one focuses on the informative role of price, price can be a partial substitute for advertising. If this issue is included in the model development, my conjecture is that the anomalies will disappear. 2/15/20098

The authors perhaps can conduct a simulation to incorporate the above comments. Such a simulation can yield a good understanding of the issues of the paper. 2/15/20099