Pass-through timing

Abstract

Trade promotions are the most important promotional tool available to a manufacturer. However trade promotions can achieve their objective of increasing short-term sales only if the retailer passes through these promotions. Empirical research has documented that there is a wide variation in retail pass-through across products. However little is known about the variations in pass-through over time. This is particularly important for products with distinct seasonal patterns. We argue that extant methods of measuring pass-through are inadequate for seasonal products. We therefore introduce a measurement approach and illustrate it using two product categories. We find interesting differences in pass-through for loss-leader products versus regular products during high demand and regular demand periods. We find that retailers use a deep and narrow pass-through strategy (high pass-through on loss-leader products, but small pass-through on regular products) during periods of regular demand and broad and shallow pass-through strategy (smaller, but similar pass-through on both loss-leader and regular products) during periods of high demand. Loss leader products continue to obtain higher pass-through in high demand periods, if the category's high demand period is also a high demand period for other product categories as well. Copyright Springer Science + Business Media, LLC 2006Pass-through, Retail competition, Loss leaders, Trade promotions,

Decision Stages and Asymmetries in Regular Retail Price Pass-Through

“…Finally, a structural modeling approach to estimating pass-through was used by Meza and Sudhir (2006) who investigated the timing of pass-through. They found that retailers tend to pass through a smaller amount in peak demand periods but that pass-through for loss leaders exceeds 160% in non-peak demand periods.…”

Empirical Models of Manufacturer-Retailer Interaction: A Review and Agenda for Future Research

“…More work is needed to uncover how retailers make these decisions and what role, if any, their trade promotion funds play in achieving non price support. Meza and Sudhir (2006) document differences in pass-through across time for seasonal products whose demand elasticities differ across high and low demand periods, hence dp/dc may reflect not only pass-through but also variation in demand elasticities. Using a structural approach, they control for demand elasticities across different periods.…”

Findings—Retailer Promotion Pass-Through: A Measure, Its Magnitude, and Its Determinants

“…The limitations of the measure should also be noted at the outset. It precludes us from studying promotion frequency versus depth decisions (Agrawal 1996;Kumar, Rajiv, and Jeuland 2001), pass-through timing (Meza and Sudhir 2006), or promotion timing within and across brands (Lal 1990;Tellis and Zufryden 1995). We also cannot examine temporally coordinated cross brand pass-through (e.g., BDG;McAlister 2007;Dubé and Gupta 2008).…”