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Marketing|inventory interactions in the characterization of retailer response to manufacturer trade deals

Author

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  • F. J. Arcelus

    (Departamento de Gestión de Empresas, Universidad Pública de Navarra, Campus de Arrosadía, 31006 Pamplona, Navarra, Spain)

  • G. Srinivasan

    (Faculty of Administration, University of New Brunswick, P.O. Box 4400, Fredericton, Canada N.B. E3B 5A3)

Abstract

This paper presents a characterization of a profit-maximizing retailer's response to a manufacturer trade deal that encompasses both marketing and operations concerns. Price pass-through behaviour is based on demand being realized over time, at a given rate, thereby allowing for the introduction of inventory-related costs. The analysis establishes a direct and positive link between the incidence of forward buying and the incidence of more-than-100% price pass-through policies. As a result, unless restricted by anti-hoarding policies, the profit-maximizing retailer's strategy tends towards large price reductions, but only for a small fraction of the units acquired at the discounted price. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • F. J. Arcelus & G. Srinivasan, 2006. "Marketing|inventory interactions in the characterization of retailer response to manufacturer trade deals," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 537-547.
  • Handle: RePEc:wly:mgtdec:v:27:y:2006:i:7:p:537-547
    DOI: 10.1002/mde.1272
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    File URL: http://hdl.handle.net/10.1002/mde.1272
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    References listed on IDEAS

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    1. Ardalan, Alireza, 1995. "A comparative analysis of approaches for determining optimal price and order quantity when a sale increases demand," European Journal of Operational Research, Elsevier, vol. 84(2), pages 416-430, July.
    2. Sridhar Moorthy, 2005. "A General Theory of Pass-Through in Channels with Category Management and Retail Competition," Marketing Science, INFORMS, vol. 24(1), pages 110-122, August.
    3. Scott A. Neslin & Stephen G. Powell & Linda Schneider Stone, 1995. "The Effects of Retailer and Consumer Response on Optimal Manufacturer Advertising and Trade Promotion Strategies," Management Science, INFORMS, vol. 41(5), pages 749-766, May.
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    Cited by:

    1. Vincent Nijs & Kanishka Misra & Eric T. Anderson & Karsten Hansen & Lakshman Krishnamurthi, 2010. "Channel Pass-Through of Trade Promotions," Marketing Science, INFORMS, vol. 29(2), pages 250-267, 03-04.

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