Trade Deals and/or On-Package Coupons

Abstract

The selection of either a pull or a push price promotion has mainly been investigated in contexts where manufacturers offer deals to consumers at the time of purchase or other trade deals toretailers. This paper extends this framework to where manufacturers can offer either trade deals or rebate-like promotions to consumers such as on-pack coupons that stimulate the fi rst and second purchases or a combination of the two promotion vehicles. It is demonstrated that the decision to implement either of the three promotion options critically depends, among other factors, on the percentage of first-time buyers who redeem their coupons at the second purchase. Particularly, a necessary condition to simultaneously offer both a trade deal and coupons is to have a positive coupon redemption rate. When possible, manufacturers prefer on-pack coupons over trade deals to take advantage of slippage and to further increase the overall demand via coupon-induced repeat purchase. Manufacturers are more likely to take the lion's share of channel profits.