A Theory of Consumer Promotions: The Model (Classic Reprint)
Consumers who react to a promotional offer might switch from their preferred brand to the promoted brand, they might stockpile the promoted brand, or they might switch the stockpile. We model the implications of such consumer responses for manufacturer's profit. Conditions under which a profit maximizing manufacturer should promote its product are then inferred from the aggregated response functions. It is never profitable to promote to consumers who only stockpile in response to a promotion. A sufficient number of consumers must switch to the promoted brand to make promoting profitable. Stockpiling behavior on the part of those consumers who switch to the promoted brand will, however, enhance profitability. The paradigm provides further insights which run counter to prevailing theory. Promotion is shown to be more likely to benefit small, rather than large, share brands. And we conjecture that there should not be a pronounced trough in market level sales following a promotional sales peak.
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