Optimal dynamic advertising policy considering consumer ad fatigue

Abstract

In the age of digital advertising, consumers are bombarded with an overwhelming number of advertisements from various channels every day. While repeated exposures to advertising can capture consumers' attention and stimulate their purchases, it is crucial to recognize that excessive advertising campaigns can cause consumer fatigue, diminished responsiveness, or even irritation. In the present study, our objective is to formulate the optimal advertising policy considering the effect of consumer ad fatigue. By introducing an attenuation factor that accounts for the negative impact of excessive advertising expenditure, we modify the dynamics of goodwill in the classical Nerlove-Arrow model. This modification results in the advertising response function exhibiting an inverted U-shaped curve with respect to the advertising expenditure. Our analysis indicates that when consumers experience ad fatigue, it is advisable for the firm to proportionally reduce its advertising expenditure in all time periods. However, the firm should maintain its original direction of trajectory of optimal advertising expenditure despite the presence of consumer ad fatigue.