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Modelling the Effectiveness and Profitability of Trade Promotions

Author

Listed:
  • Robert C. Blattberg

    (University of Chicago)

  • Alan Levin

    (Interactive Data Corporation)

Abstract

Trade promotions have become an increasingly important element of the marketing mix. Yet, there is very little research describing how to measure the profitability and effectiveness of trade promotions. This paper describes how retailers behave when trade promotions are offered. Then, a model is developed to capture the two key components of the process: the consumer and the retailer. An example is given showing how to apply the model to actual manufacturer and retail sales data. Then estimates of the profitability for different items in a product category are calculated. Many research questions are raised in this paper which can serve as future directions for research. Why are trade promotions generally unprofitable? How can scanner data improve the estimates given? How do different types of trade promotions affect the retailer and ultimately the consumer? Which brands and items should be trade promoted?

Suggested Citation

  • Robert C. Blattberg & Alan Levin, 1987. "Modelling the Effectiveness and Profitability of Trade Promotions," Marketing Science, INFORMS, vol. 6(2), pages 124-146.
    • Handle: RePEc:inm:ormksc:v:6:y:1987:i:2:p:124-146
    DOI: 10.1287/mksc.6.2.124
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    Citations

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    Cited by:

    1. Sridhar, Shrihari & Naik, Prasad A. & Kelkar, Ajay, 2017. "Metrics unreliability and marketing overspending," International Journal of Research in Marketing, Elsevier, vol. 34(4), pages 761-779.
    2. Anselmi, Kenneth, 2000. "A Brand's Advertising and Promotion Allocation Strategy: The Role of the Manufacturer's Relationship with Distributors as Moderated by Relative Market Share," Journal of Business Research, Elsevier, vol. 48(2), pages 113-122, May.
    3. Fredericks, Peter J. & McLaughlin, Edward W., 1992. "New Product Procurement: A Summary of Buying Practices and Acceptance Criteria at U.S. Supermarket Chains," Research Bulletins 123087, Cornell University, Department of Applied Economics and Management.
    4. Raju, Jagmohan S., 1995. "Theoretical models of sales promotions: Contributions, limitations, and a future research agenda," European Journal of Operational Research, Elsevier, vol. 85(1), pages 1-17, August.
    5. Tsao, Yu-Chung & Lu, Jye-Chyi, 2016. "Trade promotion policies in manufacturer-retailer supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 96(C), pages 20-39.
    6. Armstrong, Marcia K. & Gerstner, Eitan & Hess, James D., 1994. "Pocketing The Trade Deal," Promotion in the Marketing Mix: What Works, Where and Why, April 28-29, 1994, Toronto, Canada 279598, Regional Research Projects > NECC-63: Research Committee on Commodity Promotion.
    7. Xavier Drèze & David R. Bell, 2003. "Creating Win–Win Trade Promotions: Theory and Empirical Analysis of Scan-Back Trade Deals," Marketing Science, INFORMS, vol. 22(1), pages 16-39, November.
    8. McColl, Rod & Macgilchrist, Renaud & Rafiq, Shuddhasattwa, 2020. "Estimating cannibalizing effects of sales promotions: The impact of price cuts and store type," Journal of Retailing and Consumer Services, Elsevier, vol. 53(C).
    9. Ramanathan, Usha & Muyldermans, Luc, 2010. "Identifying demand factors for promotional planning and forecasting: A case of a soft drink company in the UK," International Journal of Production Economics, Elsevier, vol. 128(2), pages 538-545, December.
    10. Pinçe, Çerağ, 2021. "Forward Buying and Strategic Stockouts," European Journal of Operational Research, Elsevier, vol. 289(1), pages 118-131.
    11. Jin, Ming & DeHoratius, Nicole & Schmidt, Glen, 2017. "In search of intra-industry bullwhips," International Journal of Production Economics, Elsevier, vol. 191(C), pages 51-65.
    12. Geoffrey A. Chua & Yan Liu, 2019. "Sensitivity analysis on responsive pricing and production under imperfect demand updating," Naval Research Logistics (NRL), John Wiley & Sons, vol. 66(7), pages 529-546, October.

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