Improving trade promotions through virtual forward buying

Abstract

Purpose – The purpose of this paper is to propose a virtual forward-buying model that allows for forward buying but reduces the channel cost with no major behavioral change on the part of manufacturers and retailers. Design/methodology/approach – Using simulations, the authors compare the proposed virtual forward-buying model with the traditional forward-buying and everyday-low-price approaches. Findings – The authors find that the proposed model leads to lower overall channel costs that are shared equitably between both the manufacturer and the retailer. Research limitations/implications – No primary or secondary is used, a situation that is usually very difficult to find in this area. Practical implications – The paper presents a new method to improve trade promotion efficiencies that does not require a drastic change of habits for either the manufacturer or the retailer; allows the practice of forward buying to continue; and leads to channel cost reductions for both parties. Originality/value – The paper presents research in an area that is under-researched due to lack of data.