The optimal choice of promotional vehicles: Front-loaded or rear-loaded incentives?

We examine the key factors that influence a firm's decision whether to use front-loaded or rear-loaded incentives. When using price packs, direct mail coupons, FSI coupons or peel-off coupons, consumers obtain an immediate be nefit upon purchase or a front-loaded incentive. However, when buying produ cts with in-pack coupons or products affiliated with loyalty programs, prom otion incentives are obtained on the next purchase occasion or later, i.e., a rear-loaded incentive. Our analysis shows that the innate choice process of consumers in a market (variety-seeking or inertia) is an important dete rminant of the relative impact of front-loaded and rear-loaded promotions. While in both variety-seeking and inertial markets, the sales impact and th e sales on discount are higher for front-loaded promotions than for rear-lo aded promotions, from a profitability perspective, rear-loaded promotions m ay be better than front-loaded promotions. We show that in markets with hig h variety-seeking it is more profitable for a firm to rear-load, and in mar kets with high inertia it is more profitable to front-load. Model implicati ons are verified using two empirical studies: (a) a longitudinal experiment (simulating markets with variety-seeking consumers and inertial consumers) and (b) market data on promotion usage. The data in both studies are consi stent with the model predictions.