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Note. Optimal Promotion Strategies: A Demand-Sided Characterization

Author

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  • Duncan Simester

    (Graduate School of Business, The University of Chicago, 1101 East 58th St., Chicago, Illinois 60637)

Abstract

We generalize Narasimhan's (Narasimhan, Chakravarthi. 1988. Competitive promotional strategies. J. Bus. 61(4) 427--449.) model of retail promotion to include multiple products and general demand functions. Doing so allows us to further characterize optimal promotion strategies. We find that firms prefer to offer deeper promotions on products for which switching customers have stronger demand than loyal customers and/or for which the price sensitivity of demand is high for both switching and loyal customers. We further show that firms will offer deeper promotions on products which enjoy complementary relationships with other products that they sell rather than on products for which the firm sells a substitute.

Suggested Citation

  • Duncan Simester, 1997. "Note. Optimal Promotion Strategies: A Demand-Sided Characterization," Management Science, INFORMS, vol. 43(2), pages 251-256, February.
    • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:2:p:251-256
    DOI: 10.1287/mnsc.43.2.251
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    Citations

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    Cited by:

    1. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    2. Yuxin Chen & Chakravarthi Narasimhan & Z. John Zhang, 2001. "Consumer Heterogeneity and Competitive Price-Matching Guarantees," Marketing Science, INFORMS, vol. 20(3), pages 300-314, June.
    3. Junhyun Bae & Li Chen & Shiqing Yao, 2022. "Service Capacity and Price Promotion Wars," Management Science, INFORMS, vol. 68(12), pages 8757-8772, December.
    4. Maxim Sinitsyn, 2016. "Managing Price Promotions Within a Product Line," Marketing Science, INFORMS, vol. 35(2), pages 304-318, March.
    5. Lee Sang-Yong T. & Png Ivan P.L., 2004. "Buyer Shopping Costs and Retail Pricing: An Indirect Empirical Test," Review of Marketing Science, De Gruyter, vol. 2(1), pages 1-22, July.
    6. Zhili Zhou & Yongpei Guan, 2013. "Two-stage stochastic lot-sizing problem under cost uncertainty," Annals of Operations Research, Springer, vol. 209(1), pages 207-230, October.
    7. Hao Lan & Tim Lloyd & Wyn Morgan & Paul W. Dobson, 2022. "Are food price promotions predictable? The hazard function of supermarket discounts," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(1), pages 64-85, February.
    8. Jorge M. Silva-Risso & Randolph E. Bucklin & Donald G. Morrison, 1999. "A Decision Support System for Planning Manufacturers' Sales Promotion Calendars," Marketing Science, INFORMS, vol. 18(3), pages 274-300.
    9. Kyungmin Choi & Sunghan Ryu & Daegon Cho, 2019. "When a loss becomes a gain: different effects of substitute versus complementary loss leaders in a multi-sided platform," Electronic Markets, Springer;IIM University of St. Gallen, vol. 29(4), pages 681-691, December.
    10. In, Younghwan & Wright, Julian, 2014. "Loss-leader pricing and upgrades," Economics Letters, Elsevier, vol. 122(1), pages 19-22.
    11. Rajiv Lal & J. Miguel Villas-Boas, 1998. "Price Promotions and Trade Deals with Multiproduct Retailers," Management Science, INFORMS, vol. 44(7), pages 935-949, July.
    12. Maxim Sinitsyn, 2012. "Coordination of Price Promotions in Complementary Categories," Management Science, INFORMS, vol. 58(11), pages 2076-2094, November.
    13. Bing Jing & Zhong Wen, 2008. "Finitely Loyal Customers, Switchers, and Equilibrium Price Promotion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 683-707, September.
    14. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    15. Sridhar Moorthy & Yongmin Chen & Shervin Shahrokhi Tehrani, 2018. "Selling Your Product Through Competitors’ Outlets: Channel Strategy When Consumers Comparison Shop," Marketing Science, INFORMS, vol. 37(1), pages 138-152, January.

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