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Do Promotions Benefit Manufacturers, Retailers, or Both?

Author

Listed:
  • 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.)

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.

Suggested Citation

  • Shuba Srinivasan & Koen Pauwels & Dominique M. Hanssens & Marnik G. Dekimpe, 2004. "Do Promotions Benefit Manufacturers, Retailers, or Both?," Management Science, INFORMS, vol. 50(5), pages 617-629, May.
    • Handle: RePEc:inm:ormnsc:v:50:y:2004:i:5:p:617-629
    DOI: 10.1287/mnsc.1040.0225
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    References listed on IDEAS

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