Offensive versus Defensive Marketing : What is the Optimal Spending Allocation?

This article investigates the optimal allocation between offensive and defensive marketing in a dynamic mature market where two firms compete for market share. A modified Lanchester model is used to determine Nash stationary feedback strategies that allow the competitors to adjust their marketing expenditures as their market shares evolve over time. An important component of the model is the interaction between offensive and defensive marketing activities, which was not considered previously. Our findings suggest that a cost differential between offensive and defensive marketing cannot fully explain resource allocation in a competitive market. Rather, the optimal allocation critically depends on the firms' relative positions in the market, their competitive advantages in offensive and defensive marketing, and the costs and effectiveness of these two classes of marketing activities. The theoretical and managerial implications are discussed