A RETAILER PROMOTION POLICY MODEL CONSIDERING PROMOTION SIGNAL SENSITIVITY

Recent research suggests that the signal (e.g., sign or marker) with a point of purchase promotion will stimulate a significant sales increa se, regardless of whether or not that signal is accompanied by a price cut. This paper develops a model of retailer profitability that incor porates this ''promotion signal sensitivity.'' In a field test, the pr ofitability of the promotion policy prescribed by this model is compar ed to the profitability of two other promotion policy-setting paradigm s: a model-based policy that does not consider promotion signal sensit ivity and one prescribed by industry experts. The test results support the proposed model. Its policy generates 11% more category profit per unit than the model-based policy and 12% more than the industry exper ts. Implications for retailers and future research are discussed.