LONG DISTANCE TELEPHONE SERVICE ADVERTISING CHOICES

Your team plans and implements marketing for a leading provider of long distance services. Each month, you make decisions regarding the advertising strategy that you will use. As you know, this industry is crowded with contenders for market share.

You may choose from two general marketing approaches: highlight your company’s positive attributes, or advertise negative aspects of your leading competitor’s service. Your primary competitor also makes this ongoing choice. If both of you avoid negative advertising, both companies net about $1 million each period. However, if one company runs negative ads while the other does not, the company that advertises gains $2 million and the company that does not run negative ads loses $3 million. If both companies run negative ads, both of them lose $2 million to other long distance providers.

Because people tend to make more calls in some months than in others, the profit and loss values resulting from advertising decisions are doubled in September and quadrupled in December. Further, there is a trade show in September, at which one of your team members may talk with a representative of the other marketing team.

Your company’s fiscal calendar ends in June, so we begin then. The following table summarizes payoff possibilities.

Run neg. ads? Yes/no No/yes Yes/yes No/no

Payoffs +2/-3 -3/+2 -2/-2 +1/+1

Following initial consultation with team members, you will have three minutes to decide whether or not to run negative ads in each time period. CheapChat and TeleTalk representatives will have five minutes to meet at the trade show. You may record your decisions, profits, and/or losses below.

Date/Event CheapChat ad TeleTalk ad CheapChat $ TeleTalk $

July ads Y N Y N

August ads Y N Y N

September ads (payoff x 2) Y N Y N

Trade Show -- -- -- --

October ads Y N Y N

November ads Y N Y N

December ads (payoff x 4) Y N Y N

Total profit/loss