The Optimal Choice of Promotional Vehicles: Front-Loaded or Rear-Loaded Incentives?
We examine the key factors that influence a firm's decision whether to use front-loaded or rear-loaded incentives. When using price packs, direct mail coupons, FSI coupons or peel-off coupons, consumers obtain an immediate benefit upon purchase or a front-loaded incentive. However, when buying products with in-pack coupons or products affiliated with loyalty programs, promotion incentives are obtained on the next purchase occasion or later, i.e., a rear-loaded incentive. Our analysis shows that the innate choice process of consumers in a market (variety-seeking or inertia) is an important determinant of the relative impact of front-loaded and rear-loaded promotions. While in both variety-seeking and inertial markets, the sales impact and the sales on discount are higher for front-loaded promotions than for rear-loaded promotions, from a profitability perspective, rear-loaded promotions may be better than front-loaded promotions. We show that in markets with high variety-seeking it is more profitable for a firm to rear-load, and in markets with high inertia it is more profitable to front-load. Model implications are verified using two empirical studies: (a) a longitudinal experiment (simulating markets with variety-seeking consumers and inertial consumers) and (b) market data on promotion usage. The data in both studies are consistent with the model predictions.
Volume (Year): 46 (2000)
Issue (Month): 3 (March)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Moshe Givon, 1984. "Variety Seeking Through Brand Switching," Marketing Science, INFORMS, vol. 3(1), pages 1-22.
- Kapil Bawa, 1990. "Modeling Inertia and Variety Seeking Tendencies in Brand Choice Behavior," Marketing Science, INFORMS, vol. 9(3), pages 263-278.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414.
- Jagmohan S. Raju & Sanjay K. Dhar & Donald G. Morrison, 1994. "The Effect of Package Coupons on Brand Choice," Marketing Science, INFORMS, vol. 13(2), pages 145-164.
- Barbara E. Kahn & Jagmohan S. Raju, 1991. "Effects of Price Promotions on Variety-Seeking and Reinforcement Behavior," Marketing Science, INFORMS, vol. 10(4), pages 316-337.
- Aradhna Krishna & Z. John Zhang, 1999. "Short- or Long-Duration Coupons: The Effect of the Expiration Date on the Profitability of Coupon Promotions," Management Science, INFORMS, vol. 45(8), pages 1041-1056, August.
- Sanjay K. Dhar & Donald G. Morrison & Jagmohan S. Raju, 1996. "The Effect of Package Coupons on Brand Choice: An Epilogue on Profits," Marketing Science, INFORMS, vol. 15(2), pages 192-203.
- Scott A. Neslin & Caroline Henderson & John Quelch, 1985. "Consumer Promotions and the Acceleration of Product Purchases," Marketing Science, INFORMS, vol. 4(2), pages 147-165.
- Abel P. Jeuland, 1979. "Brand Choice Inertia as One Aspect of the Notion of Brand Loyalty," Management Science, INFORMS, vol. 25(7), pages 671-682, July.
- Peter S. Fader & James M. Lattin, 1993. "Accounting for Heterogeneity and Nonstationarity in a Cross-Sectional Model of Consumer Purchase Behavior," Marketing Science, INFORMS, vol. 12(3), pages 304-317.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:46:y:2000:i:3:p:348-362. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If references are entirely missing, you can add them using this form.