Effectiveness and Role of Trade Promotions in the CPG Industry*

Abstract

This paper investigates how marketing push strategies such as trade promotions, selling general administration (SGA), and research and development (R&D) in consumer-packaged goods affect net sales. Expenditure costs for such strategies run into billions of dollars annually, and the practices themselves are controversial. However, the empirical literature is limited because direct measures of trade promotions and R&D have not been available. This study contributes to the existing literature in the following ways. First, it uses actual dollar value measures of trade promotions, SGA, and R&D payments. Secondly, it employs quantile regression, a new class of regression methodology that permits the analysis of heterogeneity in firm behaviors. Further, the findings shows that trade promotions are positively related to manufacturer net sales in the consumer packaged goods.