Sa. Neslin et al., THE EFFECTS OF RETAILER AND CONSUMER RESPONSE ON OPTIMAL MANUFACTURERADVERTISING AND TRADE PROMOTION STRATEGIES, Management science, 41(5), 1995, pp. 749-766
Citations number
32
Categorie Soggetti
Management,"Operatione Research & Management Science
This research examines how retailer and consumer responses influence a
manufacturer's optimal advertising and trade promotion plans. We deve
lop a dynamic optimization model which considers the actions of the ma
nufacturer, retailers, and consumers. The manufacturer attempts to max
imize its profits by advertising directly to consumers and offering pe
riodic trade deal discounts to the retailer in the hope that the retai
ler will in turn ''pass through'' a retailer promotion to the consumer
. We show how the manufacturer's optimal allocation depends on consume
r response to advertising, consumer response to retailer promotions, r
etailer inventory carrying cost, and retailer passthrough behavior. Fo
r example, we find that retailer carrying costs and promotion wearout
play a central role in constraining expenditures on trade promotions.
We predict that as trade promotions are designed to eliminate forward
buying, manufacturers will find it in their interest to promote more s
teeply. We also find a natural tendency for advertising and trade deal
ing to substitute for each other in an optimal plan.