A Market Experiment on Trade Promotion Budget and Allocation
Gomez, Miguel I.; Rao, Vithala R.; Yuan, Hong
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.
WP 2009-28 September 2009
Charles H. Dyson School of Applied Economics and Management, Cornell University