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A Market Experiment on Trade Promotion Budget and Allocation

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  • Gomez, Miguel I.
  • Rao, Vithala R.
  • Yuan, Hong

Abstract

We design a market experiment to examine how firm size and ability to choose trade promotion types influence trade promotion budget, its allocation and channel profits. Our experimental results show that larger manufacturers offer smaller trade promotion budgets. Manufacturers with ability to influence the allocation decision favor scan-backs while retailers favor off-invoices. Trade promotion decisions affect profit sharing within the channel but not total channel profit. We validate these findings with an econometric analysis of survey data from supermarket executives. Overall, our results suggest that market experiments can shed light on trade promotion outcomes for which industry data are sparse.

Suggested Citation

  • Gomez, Miguel I. & Rao, Vithala R. & Yuan, Hong, 2009. "A Market Experiment on Trade Promotion Budget and Allocation," Working Papers 55928, Cornell University, Department of Applied Economics and Management.
    • Handle: RePEc:ags:cudawp:55928
    DOI: 10.22004/ag.econ.55928
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