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How Does “3-D Negotiation” MoveBeyond in a Dimension of a Win–Win–WinApproach for Integrated BargainingSolution Analysis of Vertical CooperativeAdvertising Campaigns?George S. Spais aa Graduate Technological Educational Institute of Western Greece ,Patras , GreecePublished online: 10 Feb 2014.

To cite this article: George S. Spais (2014) How Does “3-D Negotiation” Move Beyond in aDimension of a Win–Win–Win Approach for Integrated Bargaining Solution Analysis of VerticalCooperative Advertising Campaigns?, Journal of Promotion Management, 20:1, 36-58, DOI:10.1080/10496491.2013.829163

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Journal of Promotion Management, 20:36–58, 2014Copyright © Taylor & Francis Group, LLCISSN: 1049-6491 print / 1540-7594 onlineDOI: 10.1080/10496491.2013.829163

How Does “3-D Negotiation” Move Beyond in aDimension of a Win–Win–Win Approach forIntegrated Bargaining Solution Analysis of

Vertical Cooperative Advertising Campaigns?

GEORGE S. SPAISGraduate Technological Educational Institute of Western Greece, Patras, Greece

The research aim of this study was to examine the possibility toinvestigate win–win–win Spais-Papakonstantinidis model in orderto develop an integrated bargaining solution analysis for verticaladvertising campaigns under the prism of the “3-D Negotiation.”First, the author provided some summary points of the critical caseof Proctor & Gamble (P&G) and Wal-Mart. Second, the utility func-tions were extended based on author’s previous works and the find-ings of the critical case study. The author considered a simplifiedsituation where a brand manufacturer and an independent re-tailer are renegotiating, assuming that the negotiations occur inan incomplete and asymmetric information environment.

KEYWORDS vertical cooperative advertising, 3-D Negotiation ap-proach, bargaining solution analysis, win-win-win Papakonstan-tinidis model

INTRODUCTION

The continuous conflict between the two main bargaining power poles incooperative advertising decisions (manufacturer and retailer) regarding tothe share of the cost, shape the landscape of its management and operation(see the term in AMA’s online dictionary). However, there is a third bar-gaining power pole: the customer. The roles of the three poles are not soclear in the marketing literature stuck in a win–win versus win–lose debate.The concept of the third “win” in a traditional “win–win” co-operative ap-proach for vertical cooperative advertising campaigns was presented for the

Address correspondence to George S. Spais, Graduate Technological Educational Insti-tute of Western Greece, Megalou Alexandrou 1, Koukouli, Patras 26 334, Greece. E-mail:gspais@otenet.gr

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first time in the marketing literature in 2009 (Spais, Papakonstantinidis, &Papakonstantinidis, 2009). The historical evolution of the bargaining litera-ture and the co-op models in the cooperative advertising literature; confirmsthat the “triple-pole” approach is revolutionary (the “triple-pole” approachin bargaining situations was proposed for the first time in Aug. 2002; see theknown “Win–Win–Win Papakonstantinidis Model”). According to series ofempirical evidence the last 4 decades (e.g, Berger, 1972; Yan, 2010), verticalcooperative advertising has been used by many industries for decades andcontinues to play a key promotional role for many brand manufacturers,retailers and consumers. According to the examination of modern empiri-cal evidence (Spais, 2012), a significant increase in spending volume wasobserved during the increase of the research activity showing clearly thesignificance of cooperative advertising as a research domain and the inter-est of the academic community to explore the role and use of cooperativeadvertising in practice. He, Prasad, and Sethi (2009) underlined that coop-erative advertising is an important instrument for aligning manufacturer andretailer decisions in marketing channels. Considering bargaining as a form ofenergy between two distinguishable entities with different expectations andcontroversial interests, where each part intends to sovereign (Nash, Nasar,& Kuhn, 2001), it seems to be critical for marketing channel coordination(e.g., Ailawadi, Beauchamp, Donthu, Gauri, & Shankar, 2009). Spais (2012)identifies a significant increase of the number of studies in cooperative ad-vertising literature after 2005. From the side of negotiation analysis, it seemsthat it seeks to develop prescriptive theory and provide advice to bargain-ers and third parties (Sebenius, 1992). Lax and Sebenius (2006) developeda cognitive frame and a comprehensive set of processes referred to as “3DNegotiation” approach, which has been extensively applied also in supplychain negotiations. What makes it realistic, among other characteristics, isthe key concept of the negotiator’s dilemma, which is the tension betweenthe benefits of behaving cooperatively and the benefits of behaving compet-itively in bargaining and negotiation situation (e.g., Korobkin, 2013).

The research aim of this study is to examine the possibility of strengthen-ing the application of the win–win–win Spais and Papakonstantinidis model(Spais & Papakonstantinidis, 2011; Spais, 2012), in order to develop an inte-grated bargaining solution analysis for cases of optimal allocation of coop-erative advertising’s cost under the prism of the “3-D Negotiation.” As “3-DNegotiation” moves beyond the first dimensional win–win and win–lose ap-proaches by achieving a balance of both value-creating and value-claimingapproaches across all three dimensions, this study presents an integratedbargaining solution analysis for cases of optimal allocation of cooperativeadvertising’s cost. This study aims to identify how “3-D Negotiation” movesbeyond in a dimension of a win–win–win approach. It should be empha-sized that based on the win–win–win assumptions, the three players (brandmanufacturer, retailer, and customer) should only share the additional profit

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that results from the cooperation while receiving in advance that part of theprofit that they could have achieved anyway in the case of noncooperativebehavior.

BACKGROUND AND THEORETICAL FRAMEWORK

Negotiation literature has emerged providing critical insights on conceptualand taxonomy issues, such as the main schools of thought and eras of ne-gotiation analysis’ approaches (e.g., Zartman 1978; Raiffa, 1982; Druckman,1997). There is no question that negotiation analysis has its roots in decisionanalysis and game theory (e.g., Raiffa, 1982; Sebenius, 1992). What we haveto acknowledge is that game theory has the uniqueness for understandingnegotiations in well-structured situations, especially in understanding andperfecting the principles of justice. Von Neumann and Morgenstern (1944),Luce and Raiffa (1957), Schelling (1960), and Walton and McKersie (1965)raised crucial questions regarding to the analysis actual interactive situationsin game theory. Undoubtedly, these works are the cornerstones of nego-tiation analysis literature but not the pioneers of the idea of approachingthe field by moving to a behavioral realm, as Dewey & Bentley (1949) firstproposed. Many years later Roger Fisher (one of the influential scholars andphilosophers of negotiation) argued extensively in his works for the needfor a multidisciplinary theoretical approach, one of his pioneering concernsacknowledged recently by Sebenius (2013). In this regard, the question is ifthere is a link between bargain and behavior in the bargain and during thebargain seems to be crucial (e.g., Papakonstantinidis, 2012).

The “3-D Negotiation” approach by Lax and Sebenius (2002) presents aninteresting negotiation approach emphasizing: (a) the parties/players/polesinvolved in a negotiation; (b) the value of the agreement; and (c) the architec-ture of the agreement. The globally known book of Lax and Sebenius guidesthis study. The first dimension is tactics, where the 3-D negotiator employstactics that “both create and claim value, ideally on a long-term basis” (Lax& Sebenius, 2006, p. 205). Tactics should first aim to create value throughjoint problem solving and then focus on claiming value in the expanded pie.The second dimension is the deal design, where the deal is designed both atand away from the table. Lax and Sebenius introduce three essential aspectsof a properly designed deal: (a) moving northeast; (b) making lasting deals;and (c) negotiating in the spirit of the deal. Moving northeast is a referenceto the desired direction a deal would move on a two-axis graph in whichthe x-axis represents the value of a deal for one party (increasing from leftto right) and the y-axis represents the value of the same deal for anotherparty (increasing from bottom to top). The third dimension is the set up. Ithappens away from the table before negotiation begins and consists of thescope, sequence, and process of the negotiation.

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On the other hand, the importance of the triple win theory applied inbargaining situations for cooperative advertising campaigns is arisen fromthe transfer of the pure trust theory to a marketing context, which can beachieved in order to analyze marketing phenomena of bargaining especiallyin cooperative advertising programs (Spais et al., 2009). Marketing phenom-ena refer to understanding of the bargaining problem resolution and thetypes of negotiation in which the marketing channel member and the busi-ness dispute the price. The win-win-win Papakonstantinidis theory supportsthe significance of the tendency to sovereignty, the tendency of conflict,which results from the combination of: (a) the case of the distinguishableentity, (b) mistrust of each distinguishable entity, and (c) tendency to im-provement in a vertical marketing channel. Based on the assumptions of thewin win–win Papakonstantinidis conceptualization and the limitations in ver-tical marketing channels context, the utility assessment and cost-utility anal-yses from the partnership for A and B players/poles and the demand modelfor C player/pole are frequently presented to demonstrate the value of manyutility options in the marketing literature. However, utility indicators requirevarious methods that introduce significant methodological challenges, whichdirectly influence the results and ensuing cooperative advertising decisions.

Regarding to the win–win–win perception, it is based on the assump-tions of information accessibility and diffusion as well as the complexity inthe decision-making values that the third player/pole could unlock a series ofobstacles. Another assumption is that the individual must believe that thereis a third distinguishable part in the bargain. Sensitization is approached(under the integrated information prism) as a prerequisite of the bargainingprocess, in accordance with Harsanyi’s conditional probabilities claims(1973). According to Nash (1950, 1951), it is a hard process, in a bargainingsituation that smoothes the angles of conflict or the shares/utilities. The thirdwin works as an umbrella, which conjoins different dipolar relationships. Itmust be understood that the existence of a distinguishable entity dependsupon the degree of understanding and sensitization of knowing the otherpolar (the partnerships in a marketing channel) better, even throughpecuniary values. The conditions and assumptions describing the bargainingsituations in a win–win–win dimension are summarized in Papakonstantini-dis’ works (e.g, 2002, 2007, 2012) and its extensions regarding to verticalmarketing channels (e.g., Spais & Papakonstantinidis, 2011; Spais, 2012).

RESEARCH METHOD

Critical cases for the study of promotion management phenomena seems togain the research interest by marketing scholars as they realize the valueof becoming critically aware of the practical wisdom of promotion events(e.g., Spais, 2012), in accordance to Flyvbjerg’s (1991) critical case study

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conceptualization. In order to determine win–win–win Papakonstantinidistheoretical perspectives of the bargaining solution analysis for vertical co-operative advertising campaigns (regarding promotion costs allocation), it isincumbent upon marketing scholars and researchers to take the aforemen-tioned perspective, which allows these issues to arise. The use of the criticalcase study is considered to be of high value in this analysis, as the humanactivity (basic unit of the analysis) is adopted. The case of Proctor & Gamble(P&G) and Wal-Mart may provide valuable information that will deepen ourunderstanding of the characteristics of vertical cooperative advertising cam-paigns. The different aspects of a context, from which a particular problemsituation originates, can become increasingly visible and more accessible fora promotion management researcher (e.g., Spais, 2012). Based on Uden,Valders, and Pastor’s work (2008), a linear process was adopted in order togather the data in the critical case. The data of activity structure analysis re-sulted from the performance of the critical case study analysis, in accordancewith the methodological guidelines of Kohlbacher (2006).

Overview of Procter & Gamble (P&G), Wal-Mart,and Their Partnership

Procter & Gamble, founded in 1837, is an American multinational consumergoods company (P&G Company) and is the world’s largest producer ofhousehold and personal products by revenue. The P&G products includeTide detergent, Pampers diapers, and Gillette razors and generate over $1billion in revenue annually. As of June 30, 2013, the Company has fivereportable segments: Beauty; Grooming; Health Care; Fabric Care and HomeCare; and Baby Care and Family Care. Sales to Wal-Mart Stores, Inc. andits affiliates represent approximately 14% of its total revenue during thefiscal year ended June 30, 2013 (see company profile for P&G Company, byNYSE and New York Times). In 2011, P&G recorded $82.6 billion dollarsin sales. Fortune magazine ranked P&G in fifth place on the World’s MostAdmired Companies list, which was up from sixth place in 2010. P&G isa global giant for household and personal goods. P&G divides its businessinto three Global Business Units (GBUs) that develop and produce productsand its corporate group, which handles the operation, and administrationof the company. Wal-Mart Stores, Inc. (Wal-Mart), founded in 1962, is anAmerican-based multinational retail corporation that operates chains of largediscount department stores and warehouse stores (Wal-Mart Company, is thelargest retailer worldwide and one of the world’s largest public corporations,according to the Fortune Global 500 list in 2012 (CNN Money, 2012). Wal-Mart remains a family owned business, as the Walton family, who own a48% stake in Wal-Mart, controls the company. It is also one of the world’smost valuable companies. Wal-Mart has 8,500 stores in 15 countries, under55 different names.

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Win-Win Relationship of P&G and Wal-Mart and theCustomer as the Third “Win”

Customer Business Development (CBD) managers collaborate strategicallywith customers to help develop their business in P&G’s product categories.“We depend on them as much as they depend on us” (Kotler & Armstrong,2009, p. 462) says one CBD manager. By collaborating with each other, P&Gand its customers create win–win relationships that help both to prosper(Kotler & Armstrong, 2009). Wal-Mart and P&G (by working together aspartners) have turned what used to be a win–lose situation of each strivingto lower its own costs regardless of the effect on the other’s costs into awin–win situation of reduced costs and greater revenues for both parties(e.g., Ghadimi, Szidarovszky, Farahani, & Khiabani, 2012; Kumar, 1996). Thecompany employs a massive sales force of more than 5,000 salespersonsworldwide (Kotler & Armstrong, 2009, p. 462). At P&G, however, they rarelycall it “sales.” Instead, it is “Customer Business Development” (CBD). In ad-dition, P&G sales reps are not “salespeople”; they are “CBD managers” or“CBD account executives” (Kotler & Armstrong, 2009). CBD involves col-laborating with customers to jointly identify strategies that create shoppervalue and satisfaction and drive profitable sales at the store level. When itcomes to profitably moving Tide, Pampers, Gillette, or other P&G brandsoff store shelves and into consumers’ shopping carts, P&G reps and theirteams often knows more than the retail buyers they advise. In fact, P&G’sretail partners often rely on CBD teams to help them manage not only theP&G brands on their shelves but also entire product categories, includingcompeting brands. P&G understands that if its customers do not do well,neither will the company (Kotler & Armstrong, 2009). To grow its own busi-ness, therefore, P&G must first grow the business of the retailers that sellits brands to final consumers. At P&G, the primary responsibility for helpingcustomers grow falls to the sales force. Rather than just selling to its retailand wholesale customers, CBD managers collaborate strategically with cus-tomers to help develop their business in P&G’s product categories (Kotler &Armstrong, 2009). According to Yue, Austin, Wang, & Huang (2006), beforeretailers developed sophisticated point-of-sale systems, P&G would bring itscomprehensive consumers’ research to Wal-Mart and use this informationto argue for increased shelf space for its brands, to pressure to carry of allsizes of a certain product of P&G, and to demand its participation in P&Gpromotional programs.

It was not until the mid-1980s that the pioneering arrangement be-tween P&G and Wal-Mart, a new format emerged to achieve theseefficiencies—so called vertical or channel partnerships between a singlemanufacturer and a single retailer according to Steiner’s report (2001), (“Cat-egory management—a pervasive, new vertical/horizontal format;” see the

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homepage of the American Antitrust Institute). The relationship betweenWal-Mart and P&G evolved into partnership and coordination through just-in-time (JIT) delivery, electronic-data-interchange (EDI), and efficient con-sumer response (ECR) system (e.g., Ghadimi et al., 2012). The result of thisrelationship was the EDI link. EDI enables P&G to receive continuous databy satellite on sales, inventory, and prices of particular products at individualWal-Mart stores. This link allows P&G to take responsibility for managingWal-Mart’s inventory, to anticipate P&G product sales at Wal-Mart, to deter-mine the number of shelf racks and quantity required, and to automaticallyship the orders-often directly from the factory to individual stores. Accordingto Kotler and Armstrong (2009), honest and open dealings help to buildlong-term customer relationships. P&G salespeople become trusted advisorsto their retailer-partners, a status they work hard to maintain. “It took me fouryears to build the trust I now have with my buyer,” says a veteran CBD ac-count executive (Kotler & Armstrong, p. 463). “If I talk her into buying P&Gproducts that she can’t sell or out of stocking competing brands that sheshould be selling, I could lose that trust in a heartbeat.” P&G gives and cus-tomers give back in return. “We’ll help customers run a set of commercials ordo some merchandising events, but there’s usually a return-on-investment,”(Kotler & Armstrong, 2009, p. 463) explains another CBD manager. “Maybeit’s helping us with distribution of a new product or increasing space forfabric care. We’re very willing if the effort creates value for us as wellas for the customer and the final consumer” (Kotler & Armstrong, 2009,p. 463).

The conclusions derived from the numerical example of the coopera-tive advertising campaign of P&G with Walmart for a shampoo (Ping, Kuiran,& Xinyi, 2010) is interesting. Based on the aforementioned situation analy-sis regarding the competition between manufacturers’ and retailers’ brands,it seems that when the unit cost (c) of the brand manufacturer increases,the optimal national advertising level, local advertising level, ordering quan-tity, brand manufacturer’s profits, retailer’s profits, and the total profits ofthe supply chain decrease. In the Stackelberg equilibrium, owing to the in-crease of c, the brand manufacturer reduces the national advertisement andthe local advertising allowance to the retailer. It results in the decrease ofthe local advertising level, and, therefore, the demand of consumers’ de-creases. In Nash’s co-op equilibrium, owing to the increase of c, all thenational advertising level, local advertising level, and deduction decrease(Ping, Kuiran & Xinyi, 2010). The above study is one more evidence thatproves the cooperative situation is better than the noncooperative in a verticalmarketing channel context, in accordance with the literature (Spais et al.,2009).

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FINDINGS

The findings of the critical case study are summarized following the linearprocess in order to gather the data:

• Subject: P&G.• Tool: The relationship between Wal-Mart and P&G evolved into partnership

and coordination through JIT delivery, EDI, and ECR systems.• Object: This link allows P&G to take responsibility for managing Wal-

Mart’s inventory, to anticipate P&G product sales at Wal-Mart, to determinethe number of shelf racks and quantity required, and to automaticallyship the orders-often directly from the factory to individual stores. P&G’sCBD involves collaborating with customers to jointly identify strategies thatcreate shopper value and satisfaction and drive profitable sales at the storelevel. When it comes to profitably moving Tide, Pampers, Gillette, or otherP&G brands off store shelves and into consumers’ shopping carts, P&Greps and their teams often knows more than the retail buyers they advise.

• Goal: The result of this relationship was the electronic-data-interchange(EDI) link. EDI enables P&G to receive continuous data by satellite onsales, inventory, and prices of particular products at individual Wal-Martstores.

• Result: P&G achieved to build a long-term relationship with Wal-Mart,honest and open dealings and P&G salespeople become trusted advisorsto Wal-Mart, a status they work hard to maintain. The CBD managershelped Wal-Mart to run a set of commercials and merchandising eventsand there was a significant ROI.

Based on the win–win–win assumptions and the 3-D Negotiation approach,the following findings are summarized and interpreted:

• Among the performance of many key functions, the retailers enter intocontinuous negotiations to reach an agreement on price and other termsof the offer so that ownership can be transferred. The case details howP&G pioneered a new supplier-retailer partnership between P&G and Wal-Mart. Built on proximity and growing trust, the new relationship focusedon establishing a joint vision and problem-solving process, informationsharing, and generally moving away from the lowest common denominatorpricing issues that had previously defined their interactions. Informationasymmetry, which was one of the prevailing characteristics in the primarywin–lose situation in the underlined case had a determinative impact onthe disagreement fear factor. Interaction on bargain-behavior is one ofthe prevailing assumptions of the win–win–win Spais-Papakonstantinidis

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model, in accordance to the literature that evidences the strong relationbetween knowledge and behavior.

• The win–win–win theoretical model suggests that information accessibilityand diffusion is crucial because of the relation between knowledge andbehavior (the “interaction on bargain-behavior”). The different examples ofknowledge types’ synthesis and the resulted 1–1 behavior may lead brandmanufacturers to understand the bargain-behavior assumption, based oninformation given. On the other hand, brand manufacturers’ informationmay be the dominant result of this cross-related knowledge types: social-ization, sensitization, externalization, and so forth. Thus, the hypothesis ofbargain-behavior interaction is important in building the suggested C Fac-tor. The C party/player (for customers) produces a new behavioral typethat joins the interests of both sides. As the managerial attitudes of brandmanufacturers for customers’ participation in marketing planning activi-ties impact the perceived value of the triple pole approach, this meansthat brand manufacturers see a benefit through the collaboration with theretailers, because they have a strong interest in accomplishing customerrelationship goals. Based on this observation, we can safely interpret thatthe customers (as the C party/player) produce a new behavioral type thatjoins with the interest of a brand manufacturer and motivates him to buildmarketing alliances in vertical marketing channels.

• Successful brand manufacturers are interested in projects that help themimprove the collection and flow of information across its supply chain. Thecapture and flow of more accurate and timely information can help reducethe inventory in the supply chain and thus, the costs, while allowing all theplayers in the chain to respond more effectively to consumer needs. In totalaccordance with the findings of Spais (2012): (a) cooperative situations arebetter than the cooperative situations for vertical cooperative advertisingcampaigns; (b) the main objective for successful brand manufacturers isto approach customer’s needs individually and to direct campaigns at spe-cific target groups; (c) successful brand manufacturers see an adding valuethrough the collaboration with the retailers, because there are strongly in-terested in accomplishing customer relationship goals; and (d) interveningconditions of vertical cooperative advertising campaigns may be groupedinto two sections (technological impediments and organizational impedi-ments).

PROPOSITION

A simplified situation where a brand manufacturer and an independentretailer are renegotiating was considered. Both parties are interested inmaximizing their sales and profits. It was considered that bargaining is aboutthe transfer of the wholesale price of an existing product in order to achieve

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the best per unit discount in terms of a vertical cooperative advertising cam-paign. The transfer price should lie between the manufacturer’s productioncost and the maximum resale price that the retailer can charge consumers.It is assumed that the negotiations occur in an incomplete and asymmetricalinformation environment. The 3-D approach comprises a 1-D interpersonalprocess (behaviorally faithful as well as canonically rational) and a 2-D sub-stantive outcome and the third dimension that opens up once the gameitself can be varied. These dimensions correspond to interpersonal interac-tion at the table, deal design on the drawing board and changing the gameaway from the table (Lax & Sebenius, 2003, p.3). Definitely, one of the mostcrucial characteristics to be considered among the negotiation in differentcontexts and the negotiation in vertical marketing channels and, of course,in vertical cooperative advertising campaigns, is that each party/player/polewishes to maximize its profits, as entrepreneurs (see curves for maximiz-ing profits in vertical marketing channels, e.g., Berger, 1973). Based on theaforementioned findings, in a graphical representation, a win–win approachfor negotiations may create one curve (that looks like the Zone of PossibleAgreement (ZOPA), see Berger, 1973 for cooperation in vertical marketingchannels), which is widely used in literature, and shows that such a curveexists when the two players/poles are willing to cooperate. This proves theoriginal win–win–win Papakonstantinidis model (and its theoretical exten-sions for cooperative advertising campaigns) is unique and interesting, as thecooperation between two players/poles (each part looking to maximize prof-its) may be achieved by a third win (represented by a third curve) creatinga new zone with huge mutual benefits for each player/pole.

1-D

According to the fathers of the “3-D Negotiation” approach, in a dipolar re-lationship situation, moving east are improvements for the one pole/party,moving north are gains for the other pole/party, and moving northeast movesare simultaneously good for both poles/parties and may create value. Thetriple win model by Papakonstantinidis considers a triple-pole relationshipand clearly shows that there are huge mutual benefits for all poles/parties.These benefits are definitely more than the received benefits from the per-ceived possibilities frontier/ZOPA in the dipolar relationship (because ofthe fewer number of possible agreements). Bargaining is a form of energybetween two distinguishable entities with different expectations and contro-versial interests, where each part intends to be sovereign (Nash et al., 2001).The tendency to sovereignty in vertical marketing channels is due to thegrowing dominance of large retailers that alter the traditional channel incen-tives. Further, there is a tendency for conflict (and it is about communication,which is the main source of conflict followed by different expectations andorganizational structure) and mistrust between the members of the vertical

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marketing channels (see Spais et al., 2009).Of course, there has been in-creased research activity in the last four decades by all economists in or-der to propose Pareto improvements for win–win solution analyses. On theother hand, an in-depth analysis of the cooperative advertising literature (seeSpais, 2012) shows clearly the rising issue of reinforcing customers’ partici-pation in marketing management activities of customer-centric organizations(e.g., Hu, Jianyou, & Na, 2010). Further, more and more co-op advertisingmodels consider the position and influence of consumers (e.g., Ping et al.,2010, Yue et al., 2006) by incorporating price elasticity to study the effect ofmanufacturer offering price discount to consumers. The aforementioned ev-idence shows that cooperative advertising literature has begun to recognize(informally) the customer as the third win. According to Lax and Sebenius(2006), the ZOPA bounded by the two axes, represents the full set of agree-ments that are better for both sides, in terms of their interests, than no deal(point O). Accordingly, the win–win–win Spais-Papakonstantinidis model isa win–win–win case and is equivalent to a cooperative three-players-gamein vertical cooperative advertising. The theory of cooperative games is con-cerned with finding a referee solution [see function, (1)] that will be acceptedby all three cooperating players/poles, in accordance with the win–win–winSpais-Papakonstantinidis model. Therefore, the profits from cooperation arebetter than the profits from noncooperation:

[profitA(Coop) − profitA(Non-coop)] ∗ [profitB(Coop) − profitB(Non-coop)]

∗[profitC(Coop) − profitC(Non-coop)] => max! (1)

The constraints presented below (2), (3) and (4):

ProfitA(Coop) ≥ profitA(Non-coop) (2)

ProfitB(Coop) ≥ profitB(Non-coop) (3)

ProfitC(Coop) ≥ profitC(Non-coop) (4)

Profiti(Coop): Profit of the i-th player from the optimal solution of coop-eration,Profiti(Non-coop): Profit of the i-th player from the optimal solution ofnon-cooperation (threat point)

Based on the aforementioned constraints, the three players/poles shouldonly share the additional profit that results from the cooperation while re-ceiving in advance that part of the profit that they could have achievedanyway in the case of noncooperative behavior. The rationale behindthis is that the profit cannot be shared in total because the players havedifferent threat points, that is, profits in the case of noncooperation. It is

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3-D Win–Win–Win Spais-Papakonstantinidis Model 47

thereby plausible to share only the additional profit resulting from the co-operation. Constraints (2), (3), and (4) ensure that the players only acceptsolutions that are better than the one they could achieve in the case ofnoncooperation. For our case, marketing managers have to search for asolution that maximizes the additional joint profit from cooperation (i.e.,by operating a cooperative sales promotion campaign) over the respec-tive profits in the case of noncooperation (i.e., by operating separate salespromotion campaigns). As the 1-D is focused on the perceived possibili-ties frontier/ZOPA and aims to create value between the two players/polesthrough joint problem solving, and then it focuses on claiming value in theexpanded pie. Then the bargainers in a triple win approach must considerthe following utility functions, which is the heart of the “win–win–win Spais-Papakonstantinidis model” (Spais & Papakonstantinidis, 2011; Spais, 2012).The brand manufacturer, who is responsible for the advertising and salespromotion strategy is the A player/pole, with utility maximizing the profits´̂e in a given period t (t = 0, 1, 2, . . .. T ) for the brand p (p = 1, 2, . . .

P). Based on author’s previous studies (Spais et al. 2009; Spais 2011; 2012)and the findings of the critical case study (P&G and Walmart), the brandmanufacturer (A player/pole) may wish to maximize the per period profitfor an existed brand p (not new) at period t as follows [see functions (5)and (8)]:

max U ´̂e pt = (Wpt − VC pt − X) ∗ Spt(MDt, SOptBS, ADpt, ADtds/dt,

PRtds/dt, BSitBP(a,S), ξpt)

p = 0, 1, 2, . . . , P, t = 0, 1, 2, . . . , T (6)

Wptmin < Wpt < Wptmax and Wpt < Rpt (7)

By the choice of X, assuming that the retailer once told X, ADpt tomaximize (for example see Berger, 1972) the per period profit will be chosenand may be presented as follows:

max U ´̂e pt = (Wpt − VC pt + X) ∗ Spt(MDt, SOptBS, ADpt, ADtds/dt,

PRtds/dt, BSCitBP(a,S), ξpt) − ADpt

p = 0, 1, 2, . . . , P, t = 0, 1, 2, . . . , T

Wptmin < Wpt < Wptmax and Wpt < Rpt (8)

where:

´̂ept: is the per period profit; ´̂e for the brand p at period t;Wpt: is the wholesale price W for the brand p at period t;Rpt: is the retail price R for the brand p at period t;VCp: is the variable cost for the brand p at period t;

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48 G. S. Spais

X : is the best per unit discount in order to maximize sales andprofits

Spt: is the business’ existed level of sales for brand p at periodt resulting as a function of MDt, SOptBS, ADtds/dt, PRtds/dt,BSitBP(a,S), and ξpt

MDt: is the marketing decision cost at period t;SOptBS: is the objective of minimum sales volume for brand p at period

t based on the break-even sales;ADpt: is the retailer’s advertising level, respectively of brand p at

period t;ADtds/dt: is the total advertising budget at period t considering dS/dt;PRtds/dt: is the total promotion budget at period t considering dS/dtBSCitBP(a,S): is the bargaining solution cost at period t for bargaining prob-

lem BPi, because of the disagreement fear factor from infor-mation asymmetry resulting of a function of a and S where a∈ RN and S is a Pareto surface;

ξpt: is the mean utility to consumers/customers from the brand pat period t due to unobserved variables.

Regarding constraints (6) and (7), to get all players interested by cooper-ation, the wholesale price Wpt should be between a minimal value and amaximal value. It is easily verified that Wptmin < Wptmax and that when in-equality Wptmin < Wpt < Wptmax is verified, then Wpt < Rpt. A wholesaleprice near Wptmin provides a higher share of the extra profit to the retailer.When it is near to Wptmax, it provides a higher share to the brand manufac-turer. When Wpt = Wptmin, all the extra profit goes to the retailer, then thebrand manufacturer is indifferent between cooperating or not. When Wpt =Wptmax, all the extra profit goes to the brand manufacturer and the retail-ers are indifferent between cooperation and noncooperation (see Srivastava,Chakravarti, & Rapoport, 2000; Ben Youssef & Dridi, 2011). The marketingchannel member is considered as the B player/pole, with utility maximizingthe profits ´̂e for the marketing channel member from the partnership withthe business in a given period t (t = 0, 1, 2, . . ..T ) for the marketing chan-nel member (mediating, facilitating, and sales) services to the business sop(sop = 1, 2, . . .S). Based on Misra and Mohanty (2008), the author’s previ-ous studies (e.g., Spais, 2012), the findings of the critical case study (P&Gand Walmart), and the findings of the critical case study (P&G and Wal-mart), the per period profit for the retailer (“B player/pole”) for an existedbrand p (not new) at period t may be computed as follows [see function(9)]:

max U ´̂est = (MC pt − ADpt) ∗ Rspt(Rpt, SLt, MDRt, SOptBS, ADGpt,

ADtds/dt, P Rtds/dt, ζ pt) (9)

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3-D Win–Win–Win Spais-Papakonstantinidis Model 49

p = 0, 1, 2, . . . , P, t = 0, 1, 2, . . . , T

Rspt = gi(Rpti)h(AD), i = 1, 2, ..I (10)

where:

´̂est: is the per period profit;´̂efor the brand p at period t;MCp: is the marginal cost for the brand p at period t;ADpt: is the retailer’s advertising level, respectively of brand p at

period t;Rspt: is retailer’s existed level of sales for brand p at period t result-

ing as a function of Rpt, SLt, MDRt, SOptBS, ADGpt, ADtds/dt,PRtds/dt and ξ st and it is linear to Rpt;

Rpt: is the retail price R for the brand p at period t;SLt: is the store loyalty at period t;MDRt: is the marketing decision cost for the retailer at period t;SOptBS: is the objective of minimum sales volume for brand p at period

t based on the break-even sales;ADGpt: are the advertising goals of brand p at period t;ADtds/dt: is the total advertising budget at period t considering dS/dt;PRtds/dt: is the total promotion budget at period t considering dS/dtξ st: is the mean utility to consumers/customers from the brand p

at period t due to unobserved variables.AD: advertisingg: impact of RPt to mspt

h: impact of AD to mspt

Regarding computation (10) it is assumed that retailer’s sales (Rspt) is linearwith retail prices (Rpt) in accordance with many cooperative advertisingstudies (e.g., Ben Youssef & Dridi, 2011; Xiao & Qi, 2008; Misra & Mohanty,2008) and there is direct impact of AD (h) to Rspt (e.g., Ben Youssef & Dridi).Maximum value for gi(Rpti) is normalized to 1 (e.g., Ben Youssef & Dridi).This study denoted a market with utility-maximizing customers/consumersas the C player/pole who, while visiting the point of sale in a given periodt (t = 0, 1, 2, . . .. T ), may choose to purchase the brand p (p = 1, 2, . . . P)within a category or may purchase a competitive brand (equivalent to notpurchasing in the category, denoted by p = 0). The presence of the outsidealternative in our model allows for the potential sales increase. Based onprevious studies (Spais et al., 2009, Spais & Papakonstantinidis, 2011, Spais,2012), the utility that the customer/consumer c derives from brand p, atperiod t [see function (11)] is:

maxUCt = β0cpt + acX ′ct(Rpt, ADst, )λc − βcRpt + ξpt + lcpt

p = 0, 1, 2, . . . , P, t = 0, 1, 2, . . . , T (11)

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where:

β0cpt: is the utility that customer/consumer c derives from brand p atperiod t;

X ′ct: is vector of marketing mix elements that influence the cus-tomer’s/consumer’s c utility resulting as a function of Rpt andADst at period t;

Rpt: is the retail price R for the brand p at period t;ADst: is the advertising, respectively of brand p at period t;λc: response parameter to marketing mix elements (individual spe-

cific)βc: response parameter to Rpt (individual specific)ξ pt: is the mean utility to customers/consumers from brand p at

period t due to unobserved variables;lcpt: is the loyalty of customers/consumers c to the brand p at period

t.

Regarding computation (11), it is assumed that Xct as a function of retailprices and advertising is linear to consumer response λ and retail prices arelinear to consumer response β, in accordance to many cooperative advertis-ing studies (e.g., Misra & Mohanty, 2008; Xiao & Qi, 2008; Ben Youssef &Dridi, 2011).

The 2-D addresses the substance of negotiated agreements: (a) “underwhat conditions do joint gains exist?”; and (b) “what are the general principlesunderlying the design of cooperative arrangements that, ideally, create valueon a sustainable basis for the participants?” (Lax & Sebenius, 2006; Sebenius,2007). In this dimension, substance refers to the characteristic forms andclasses of agreements appropriate to negotiating triple win situations withdistinctive attributes as well as the underlying conditions that give rise tothe possibility of joint gains. Once the utilities of each player/pole in abargaining situation are well described, then the cost allocations for eachof the alternative promotion offerings may be listed in accordance to thefollowing cooperation strategy for the cost allocation [see function (11)], asthe bargaining mechanism for cooperation (that motivates the players/polesto cooperate):

max U ´̂e pt + ´̂est + ct = UA ∗ UB ∗ UC > 0Rpta, q

(12)

where:

Rpt: is the retail price for the brand p at period t;a: is the advertising level aq: is the advertising level q

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TABLE 1 Potential Outputs from a Bargaining Process for Sharing Cooperative AdvertisingCosts Among the Three Players

Salespromotionofferings

Sharefor A(%)

Sharefor B(%)

Utilityfor A

Utilityfor B

Utility for Aand B

(A × B)

Sharefor C(%)

Utilityfor C

Utility for A,B, and C

(A × B × C)

A. 80 13 2 70 140 7 2 280B. 70 22 5 68 340 8 3 1020C. 60 31 10 64 640 9 4 2560D. 50 40 16 60 960 10 5 4800 (MAX)

Note. The less shares for A and B parties/players the more share for C party/player. Utility is a personalmatter: Utility units are not compared to each other. They express the fear of breaking down theagreement. If A party/player needs more the agreement than the payoff, then he should be ready toaccept any form of agreement.

Table 1 shows the presentation of the potential outputs from a bargain-ing process regarding to the sharing of the cooperative sales promotion costamong A, B and C parties/players for different sales promotion offeringsbased on a hypothetical numerical example.

Cooperative advertising is an arrangement where A party/player (e.g.,a brand manufacturer) pays for some cost the advertising undertaken bya retailer for manufacturer’s brands. The aforementioned hypothetical nu-merical example includes cost share for A party/player from 41–90% andfor B party/player from 52–71%. The critical role of the C party/player (thecustomer), as the third win in the suggested bargaining solution analysis re-garding the sharing problem is the share cost that the customer is willing toundertake for the promotion offered in order to obtain the units of utility thatare needs/desires. This means that the customers will try to maximize theirutility by acquiring the specific promotion offering for a cost share that arewilling to undertake. Therefore, the cost shares of A and B that are willingto be undertaken directly affect the share cost and the units of utility for Cparty/player.

3-D

According to Lax and Sebenius (2006), this dimension (acting away from thetable) is about which party sets up the negotiating table in the first placeor specifies the game within which the process and substance are to beplayed. The game itself is often not simply a given, but can emerge fromconscious efforts to shape it. Actions by one or more players frequently de-termine the third dimension: which game is to be played or its scope andsequence. Elements of the scope and sequence include the players, per-ceptions of the situation, no-agreement alternatives, rules of engagement,and information and expectations’ structure (Sebenius, 2007). These ele-ments comprise the architecture of the game itself, its scope and sequence.

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Based on the aforementioned information, one of the prevailing assump-tions of the original win–win–win Papakonstantinidis model is the relationbetween knowledge and behavior (the interaction on bargain-behavior).The different examples of knowledge types syntheses and the resulted 1–1behavior leads us to understand the bargain-behavior assumption, basedon information provided. On the other hand, bargainers’ information maybe the dominant result of this cross-related knowledge type (Papakonstan-tinidis, 2011). Compared to Nash’s complete bargainers information (1951),Harsanyi (1967) distinguished between complete and incomplete informa-tion that each player has from the other’s bargaining behavior. Thus, thehypothesis of bargain-behavior interaction is important in building the sug-gested C Factor following the Harsanyi’s Bayesian Theorem original gamethat can be replaced by a game where nature first conducts a lottery in ac-cordance with the basic probability distribution (see the game definition byHarsanyi, 1967). In the win–win–win Spais-Papakonstantinidis model, the Cplayer/pole is defined in terms of a continuous sensitization process, withdemographic and/or psychographic characteristics, in accordance to Siguawand Enz (1999). These may be seen as the output of the continuous sensitiza-tion process and perfect information (the sensitization), an assumption that isalso considered strongly by Kunter’s model (2012). A sensitization coefficientwas ϕ of Ti for players’/poles’ types (belief of all levels, see as follows). Thekey notion in Harsanyi’s model is that of type (see Zamir, 2008). Each playercan be of several types where a type is to be thought of as a full descriptionof the player’s beliefs about the state of nature (the data of the game), beliefsabout the beliefs of other players about the state of nature, and about hisown beliefs, among others. One may think of a player’s type as his/her stateof mind; a specific configuration of his/her brain that contains an answerto any question regarding beliefs about the state of nature and about thetypes of the other players (Zamir, 2008). Each subset of the state of theworld1 (�) must be weighted by the ϕ appropriate sensitization coefficientof Ti, thus providing behavioral convergence toward customers prevailingethos (Spais, 2012), in accordance to the notion of ethos by Friedmann andWeaver (1979). The probability distribution pi over states of the world (�)for the player/pole i, that is to say, each player/pole have different viewsof � (see Papakonstantinidis, 2012).The (sensitized) game may defined asfollows.

G∗∗ ≤ N , �∗ < Ai, ui, ϕTi, τ i, pi, Ci > i ∈ N (13)

1 A specification of the state of nature (payoff relevant parameters) and the players’ types(belief of all levels). That is, a state of the world is a state of nature and a list of the states ofmind of all players.

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3-D Win–Win–Win Spais-Papakonstantinidis Model 53

where:

N: is the set of players/poles;�: is the set of states of the world;Ai: set of actions. Ai = A1 x A2 x. . .AN;ui: � x A → R, which is the payoff function for player/pole i of

the game;Ti: is the player/pole type i;τ i,: � → Ti, which is the player/pole type defined by the functionpi: is the probability distribution over � for the player/pole i, that

is to say, each player/pole has different views of states of theworld;

Ci: ⊆ Ai x Ti: are the available actions for player/pole i for sometype in Ti

ϕ: the sensitization coefficient of Ti

The aforementioned extension is based on Harsanyi (1967), with a difference:the original bargain between the two can be replaced by a game, where theC player/pole first conducts a lottery in accordance with the basic probabilitydistribution. In addition, the C player/pole should be seen as the result ofa new suggested bargaining behavior, coming from the sensitization pro-cess (e.g., Papakonstantinidis, 2012). In such a context, the C player/pole isgiven in terms of a continuous sensitization process, tending to sensitizationitself, inside the customers. In accordance with Papakonstantinidis proposal(2011), the heart of the analysis for a bargaining solution in a cooperativeadvertising campaign must be the explanation of how the sensitized game(G∗∗) is formed and developed. Finally, the goal of the sensitization process

islim

i → ∞Pi(S) Qi(S) Ri(S) under the constraint: Pi = Qi = Ri (P, Q, and R are thereflection strategies for each player/pole under a probability distribution).

CONCLUSIONS AND IMPLICATIONS

The investigation of an integrated bargaining solution analysis for cases ofoptimal allocation of cooperative advertising cost (in vertical marketing chan-nels) in a dimension of a win–win–win approach is a non-researched area.In order to determine win–win–win Papakonstantinidis theoretical perspec-tives of the bargaining solution analysis for vertical cooperative advertisingcampaigns (regarding to promotion costs allocation), it is incumbent uponmarketing scholars and researchers to take the aforementioned perspective,which allowed these issues to arise. The use of the case study was consideredto be of high value in our analysis. The research method of the case studywas introduced in order to reveal new constructs and to attempt to establishan initial understanding of the constructs and their relationship with other

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54 G. S. Spais

constructs, such as the win–win–win with the “3-D Negotiation” approach invertical cooperative advertising programs.

First, it attempted to do this by providing some summary points ofthe critical case of P&G and Wal-Mart. Second, the utility functions wereextended based on previous works (see Spais & Papakonstantinidis, 2011;Spais, 2012) and the findings of the critical case study. A simplified situationwhere a brand manufacturer and an independent retailer are renegotiatingwas considered. Both parties were interested in maximizing their sales andprofits. It was considered that bargaining about the transfer of the wholesaleprice of an existing product, in order to achieve a best per unit discountin terms of a vertical cooperative advertising campaign. The transfer priceshould lie between the manufacturer’s production cost and the maximumresale price that the retailer could charge consumers. It was assumed thatthe negotiations occur in an incomplete and asymmetric information en-vironment. Based on the aforementioned situation, more constraints wereincluded, in order to get all players interested by cooperation; the whole-sale price should be between a minimal value and a maximal value. Basedon the interpretation of the critical case study, a detailed proposition ofan integrated bargaining solution analysis for vertical cooperative advertis-ing campaigns for the aforementioned situation structured in accordancethe 3-Ds was presented in the sixth section of the paper. Therefore, it canbe concluded that the 3-D Negotiation moves beyond in a dimension of awin–win–win approach by supporting a balance of both value-creating andvalue-claiming approaches across all three dimensions and allows deepen-ing the understanding of the bargaining phenomena in vertical cooperativeadvertising decisions. I strongly believe that there is a research challenge tosee how 3-D bargaining moves beyond in a dimension of a win–win–win,in order to ensure the marketing channel members’ bargaining is not limitedto a single dimension in a three dimensional world.

The in-depth review of the cooperative advertising literature (e.g., Spais& Papakonstantinidis, 2011; Spais, 2012) that the triple-pole approach isa revolutionary approach, considering three centuries of scientific devel-opment of bargaining and game theories. Further, more and more co-opadvertising models consider the position and influence of consumer (e.g.,Ping et al., 2010, Yue et al., 2006) by incorporating price elasticity to studythe effect of manufacturer offering price discounts to consumers. The afore-mentioned evidence shows that cooperative advertising literature has beganto recognize (informally) the customer as the third win. Furthermore, thewin–win–win approach can prove valuable for marketing managers in termsof a systematic way of looking at cooperative advertising campaigns, col-lecting data, analyzing information, and reporting findings. As a result, themarketing managers may gain a deeper and sharpened understanding of theimpact of a cooperative advertising campaign and understand better the na-ture of the bargaining problems. I strongly believe that the 3-D win–win–win

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3-D Win–Win–Win Spais-Papakonstantinidis Model 55

Spais-Papakonstantinidis model as an integrated bargaining solution analysiswill receive significant attention in marketing literature in the near future,considering the current economic climate in which marketing managers arechallenged to rationalize their marketing budgets.

Marketing managers must realize that building a strong competitive ad-vantage in a market mainly depends on the trust links among the partnershipsin vertical marketing channels. Cohesion in the vertical marketing partner-ship in the marketing channel may be measured by the diversification Rate(R∗) from strict rules: From this point of view, customers intervention is use-ful, so as to diversify these rules at customized level adjusting them to theirneeds, wants, consuming identity, including communication codes, customs,ethics, and culture. The 3-D win–win–win Spais-Papakonstantinidis model,as a vertical marketing channels’ bargaining solution analysis for cooperativeadvertising decisions can facilitate customers to readjust bargaining rules ineach market, through a sensitization process: Community of customers isdefined as a discrete spatial/cultural entity at its sensitization process’ limit.Marketing phenomena refer to understanding of the bargaining problem res-olution and the types of negotiation in which the marketing channel memberand the business dispute the price, which will be communicated, and theexact nature of the transaction that will take place and eventually come toan agreement in terms of a promotion strategy. The theory considers theinformation accessibility and diffusion that characterize the modern market-ing environment, and the complexity in the decision-making of marketingchannel members values that the “third win” (the C factor or the third pole:the customer) could unlock a series of obstacles. The individual (althoughhis/her doubts) must believe that there is a third distinguishable part in thebargain. Based on the assumptions of the win–win–win Papakonstantinidisconceptualization and the limitations in vertical marketing channels context,the utility assessment and cost-utility analyses from the partnership for Aand B players/poles and the demand model for C player/pole are frequentlypresented to demonstrate the value of many utility options in the marketingliterature. However, utility indicators require various methods that introducesignificant methodological challenges, which directly influence the resultsand the ensuing vertical cooperative advertising decisions.

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