Do Promotions Benefit Manufacturers, Retailers, or Both?

Abstract

Do price promotions generate additional revenue and for whom? Which brand, category, and market conditions influence promotional benefits and their allocation across manufacturers and retailers? To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues, and total profits (margins). A first major finding is that a price promotion typically does not have permanent monetary effects for either party. Second, price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Moreover, retailer category margins are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands, for frequently promoted brands and for national brands in impulse product categories with a low degree of brand proliferation and low private-label shares. Retailer revenue elasticities are higher for brands with frequent and shallow promotions, for impulse products, and in categories with a low degree of brand proliferation. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. We discuss the managerial implications of our results for both manufacturers and retailers.long-term profitability, sales promotions, category management, manufacturers versus retailers, empirical generalizations, vector autoregressive models

Sales promotions and channel coordination

“…The finding that 19% of the sales promotions are profitable for both manufacturers and retailers is close to the figure of 16%, mentioned by Drèze and Bell (2003). Interestingly, in our study the manufacturer fares worse than the retailer, whereas Srinivasan et al (2004) conclude the opposite. The fact that the present study takes into account the amount the manufacturer pays to the retailer as contributions for the flyers and other promotional activities (these numbers were available in the ECR dataset, but not in the Srinivasan et al study) explains this difference.…”

“…Sales promotions account for approximately two-thirds of all promotional spending, but only 16% are profitable (Drèze and Bell 2003). Srinivasan et al's (2004) analysis of data for 75 brands in 25 categories over 399 weeks indicates that the overall channel gain from sales promotions is negative. Ailawadi et al (2006) examine all the promotions in a whole year of the leading drug store CVS in the United States and find that the net profit impact is negative.…”

Mind-Set Metrics in Market Response Models: An Integrative Approach

“…Based on all these parameters, the impulse response function estimates the net result of a -shock‖ to a marketing variable on the performance variables relative to their baselines (their expected values in the absence of the marketing shock). Specifically, we measure the long-term performance (brand sales) response to a one-unit shock (Pauwels et al 2002;Nijs et al 2001;Srinivasan et al 2004). …”

Untitled

“…Por ejemplo la publicidad de las MF conduce a una mayor intención de compra que la realizada por las MD (Bearden et al, 1984). Además, los precios promocionales ofrecidos por las MD típicamente producen una menor incidencia inmediata en la elasticidad de la categoría que las MF (Srinivasan et al, 2004), pero benefician a las marcas competidoras en la categoría más en el largo plazo (Pauwels, 2007).…”