Offensive versus defensive marketing: What is the optimal spending allocation?

This article investigates the optimal spending allocation between offensive and defensive marketing in a dynamic, mature market when two firms are competing 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. The interaction between offensive and defensive marketing activities is an important component of the model. Previous studies have not considered this variable. Our findings suggest that a cost differential between offensive and defensive marketing cannot fully explain resource allocation in a competitive market. Instead, optimal allocation largely 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. This article discusses the theoretical and managerial implications.

► We study the optimal mix between offensive and defensive marketing in a duopoly.
► Combining both offensive and defensive marketing allows firms to compete optimally.
► Cost differential cannot exclusively explain resource allocation as widely claimed.
► The firms' positions and marketing effectiveness also affect resource allocation.
► Either of the two marketing can increase or decrease with a firm's market share.