Sales Promotion Models

Abstract

Firms spend a significant part of their marketing budgets on sales promotions. Since the impact of promotions on sales is usually immediate and strong, promotions are attractive to results-oriented managers seeking to increase sales in the short term. This chapter discusses models for measuring sales promotion effects. Part I focuses on descriptive models, i.e. models that describe, analyze, and explain sales promotion phenomena. We start by discussing models for analyzing the immediate impact of promotions and decomposing the resulting sales promotion bump into a variety of sources. Next we examine what happens after the immediate bump, and describes models for measuring feedback effects, reference price effects, learning effects, permanent effects, and competitive reactions. Next we turn to descriptive models for promotions aimed at retailers (“trade promotions”), and discuss forward buying and pass-through. In Part II we discuss normative models, i.e. models that tell the decision maker what is the best (profit maximizing) decision on sales promotion activities. We cover models for planning promotions to consumers as well as decision models on trade promotions for manufacturers, and normative retailer models for optimal forward buying and pass-through. Part III concludes this chapter with a summary, practical model guidelines, and directions for future research.