Do Promotions Benefit Manufacturers, Retailers, or Both?

Shuba Srinivasan (), Koen Pauwels (), Dominique M. Hanssens () and Marnik G. Dekimpe ()
Additional contact information
Shuba Srinivasan: A. Gary Anderson Graduate School of Management, University of California, Riverside, California 92521-0203.
Koen Pauwels: Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755.
Dominique M. Hanssens: The Anderson Graduate School of Management, University of California, Los Angeles, California 90095-1481.
Marnik G. Dekimpe: Catholic University of Leuven, Naamsestraat 69, 3000 Leuven, Belgium, and Department of Marketing Management, Erasmus University Rotterdam, The Netherlands.

Management Science, 2004, vol. 50, issue 5, 617-629

Abstract: Do price promotions generate additional revenue and for whom? Which brand, category, and market conditions influence promotional benefits and their allocation across manufacturers and retailers? To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues, and total profits (margins). A first major finding is that a price promotion typically does not have permanent monetary effects for either party. Second, price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Moreover, retailer category margins are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands, for frequently promoted brands and for national brands in impulse product categories with a low degree of brand proliferation and low private-label shares. Retailer revenue elasticities are higher for brands with frequent and shallow promotions, for impulse products, and in categories with a low degree of brand proliferation. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. We discuss the managerial implications of our results for both manufacturers and retailers.

Keywords: long-term profitability; sales promotions; category management; manufacturers versus retailers; empirical generalizations; vector autoregressive models (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (99)

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