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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Business Research, Volume 57, Issue 9, September 2004, Pages 933–941
This article shows that in a model of exogenously given sales expansion target with a dominant manufacturer, the relative profitability of coupon and price-reduction schemes depends on the values of coupon redemption rates and the equivalence ratio of price reduction to coupon face value. It is also shown that retailer's margin has an uncertain impact on the compensation constraint on the manufacturer's choice between the two schemes. However, higher retailer's margin increases the likelihood that the chosen sales expansion scheme (SES) is the one that generates higher consumer welfare. A sales response model is used to estimate the equivalence ratio and critical coupon redemption rate below which the manufacturer will prefer a coupon promotion. A sensitivity analysis of the manufacturer's decision reveals that changes in the magnitude of the retailer's margin have little impact on the manufacturer's choice between alternative SESs.
Brown (2001) reports that 248 billion coupons were distributed in the year 2000 and 4.5 billion of them were redeemed for a total savings of US$3.6 billion. P&G's (1997) zero-couponing experiment in upstate New York drew fire from the state attorney general, and even P&G used 55% more free standing inserts in 1999 than in 1998 (Promo Magazine, 2000). Previous research in economics and marketing has explored the impact of coupons on brand performance. The impact on profits and welfare of simultaneous price and coupon promotion schemes has also been analyzed (Gerstner and Hess, 1991). Prior research in the marketing field has looked at the impact of consumer promotions on manufacturers' profitability Leone and Srinivasan, 1996 and Neslin and Shoemaker, 1983 and the impact of retailer promotions on retailer profitability Inman and McAlister, 1993 and Hoch et al., 1994. Marketing organizations typically prepare sales forecasts and set up sales quotas for different strategic business units (SBUs), and the SBUs are required to achieve the targeted sales level in an optimal manner Anderson et al., 1992 and Walker et al., 1977. As Challagalla and Shervani (1996) note, sales quotas are also an important device in the strategic planning and control of marketing activities. Importantly, the theoretical work on the subject focuses on optimal price or coupon decisions where the profit-maximizing sales levels are determined endogenously. Lessons from such analyses are not directly transferable to marketing situations where sales targets are set exogenously (predetermined sales target). In this article, we develop a framework for analyzing the relative profitability of coupon offerings and price reductions for an exogenously given sales expansion target. Specifically, this research looks at the profitability of the manufacturer and the retailer subject to the condition that an exogenously given sales target is achieved. This differs from the traditional approach where the focus is on maximizing profits irrespective of the sales volume achieved. In addition, in this research, we do not focus on the retail pass through of the trade deals—instead we calculate the minimum level of trade promotional dollars the retailer will require to initiate the desired sales expansion scheme (SES). From the manufacturer's perspective, the profitability of the couponing operation is a function of both the incremental sales generated by the coupon and the number of coupons redeemed (Leone and Srinivasan, 1996). The profitability of the price promotion strategy is a function of the sensitivity of sales to the price reduction. The manufacturer decides between a coupon promotion and a price promotion strategy depending upon their relative profitability. Thus, this decision depends upon the relative sensitivity of sales to coupons and price reductions (which is defined by the equivalence ratio, θ, and the coupon redemption rate, α). This research is an attempt to provide insights into this issue. The article is organized as follows. Section 2 provides the motivation for the study. The analytical model used to evaluate the impact of promotions on manufacturer and retailer profitability is presented in Section 3. In Section 4, we present an empirical application of the model. The analysis is summarized and the main conclusions are provided in Section 5.
نتیجه گیری انگلیسی
To the best of our knowledge, this is the first article that investigates the impact of pricing/promotions simultaneously on manufacturers, retailers, and consumers. The study shows that in the presence of a retailer and given sales targets, the manufacturer's choice between a coupon promotion and a price promotion strategy will depend on the relative values of the equivalence ratio, θ, and the coupon redemption rate, α. We show that a change in the exogenously determined retailer's margin has an uncertain impact on the restrictive nature of the retailer-compensation requirement. The study also reveals that with a sales expansion target, increasing marginal costs of retailing increase the likelihood of coupon promotions and vice versa. Furthermore, when consumer welfare is higher with a coupon promotion, the manufacturer always prefers a price cut. However, when consumer welfare is higher under a price cut, the manufacturer may choose a price cut or a coupon promotion depending upon the values of θ and α. One of the limitations of this research is that we look at the profitability of the retailer only from the brand and not from the whole category. Future researchers should expand this work to incorporate the retailer's profit from the whole category taking into account cross elasticities between the various brands in the product category. Since marketing expenditures constitute the largest proportion of discretionary spending in most companies, there is an obvious need for greater efficiency in marketing systems. The allusion here is to a macrolevel efficiency or systemic efficiency rather than a microlevel efficiency of a given marketing scheme. A manifestation of this idea is an increased efficiency in the decision process regarding the choice between different SESs. The theoretical and empirical results of this article contribute towards this objective by providing some clear guidelines regarding the choice between different types of marketing schemes within the context of sales targets.