Sustainable trade promotion decisions under demand disruption in manufacturer-retailer supply chains

Abstract

Trade promotion plays a critical role in real-world marketing and operations management. However, previous research paid rare attention to how to provide trade promotions in a sustainable manner when consumer demand is disrupted. Considering that demand disruption is becoming surging because of the digital economy, it is quite necessary to discern the managerial implications for sustainable trade promotion practice in demand disruption scenarios. For this purpose, we analyze trade promotions under demand disruption by integrating demand uncertainty and limited capacity into a stylized demand disruption model. Three trade promotion types, i.e. off-invoice, scan-back, and revenue-sharing, are examined, and optimal promotion decisions are derived for each strategy. Our results show that both manufacturer and retailer would adopt aggressive pricing strategies as the demand disruption being intensified. For trade promotion strategies, our results show that, for a certain level of demand disruption, the manufacturer prefers off-invoice rather than revenue-sharing when the manufacturer needs to offer a more aggressive trade promotion. This result indicates that, when aggressive trade promotions are needed, the manufacturer may be worse off by a revenue-sharing strategy, even though the revenue-sharing could coordinate a supply chain.