An Advertising Strategy Using Consumption Externality and Forgetting in the Case of Japanese Electronic Books

We construct a two-period model in which a consumer recognizes the existence of goods after advertised by firms, and total sales of the first period affect the utility of each consumer’s purchase in the second period, indicating a consumption externality. Some consumers see advertisements in the first period and remember the product, whereas some forget the product in the second period. We show that the advertising volume changes given the differences in the forgetting rate. In particular, we apply our method to the data on Japan’s electronic books obtained through a conjoint analysis survey to clarify that a better strategy is to sell a product to a small number of people at a low price or to lower the price to a certain level during the early period, and then to sell the product to a specific consumer segment at a higher price after reflecting the externality.