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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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    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. Rajiv Lal & John D. C. Little & J. Miguel Villas-Boas, 1996. "A Theory of Forward Buying, Merchandising, and Trade Deals," Marketing Science, INFORMS, vol. 15(1), pages 21-37.
    4. 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.
    5. Nanda Kumar & Surendra Rajiv & Abel Jeuland, 2001. "Effectiveness of Trade Promotions: Analyzing the Determinants of Retail Pass Through," Marketing Science, INFORMS, vol. 20(4), pages 382-404, August.
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    1. Arcelus, F.J. & Kumar, Satyendra & Srinivasan, G., 2012. "The effectiveness of manufacturer vs. retailer rebates within a newsvendor framework," European Journal of Operational Research, Elsevier, vol. 219(2), pages 252-263.
    2. 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.
    3. Ramasesh, Ranga V., 2010. "Lot-sizing decisions under limited-time price incentives: A review," Omega, Elsevier, vol. 38(3-4), pages 118-135, June.

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