Executive Summary
The authors study trade promotions for durable goods, such as automobiles, for which manufacturers provide special incentives to dealers for exceeding specific sales targets. The analysis provides notable insights about the effects of trade promotions and the effect of product durability on the promotion strategies of manufacturers.
Perhaps the most general insight is that trade promotions can help manufacturers better coordinate the pricing decisions for the distribution channel. Moreover, the channel coordination benefits of trade promotions are greater for the manufacturer selling the higher durability product. Therefore, if there are administrative costs independent of durability associated with running trade promotions, the firm with higher durability is more likely to offer trade promotions. Moreover, regardless of administrative costs, this firm will offer trade promotions at a greater depth. The authors also find retailers will be negatively affected by trade promotions when all manufacturers run trade promotions, even though program participation is voluntary.
When trade promotions are used, the increase in current sales comes from converting some potential used-car buyers into new-car buyers. As a result, when trade promotions are used, prices for used goods are reduced. Because supporting high used-car prices can be a very important concern for automakers, this article’s results highlight an important controllable variable for the automakers to achieve this objective.
The authors empirically test some of their theoretical results and find that the U.S. automobile market trade promotion data are consistent with their assumption that promotions are more likely to be used by manufacturers of high quality cars and that when these high quality manufacturers give trade promotions, they give deeper promotions.
Biography
Norris Bruce is Assistant Professor of Marketing, University of Texas at Dallas. He holds a BSc. in mathematics from the University of The West Indies, an MBA from the Amos Tuck School of Business at Dartmouth College, and a Ph.D. in business administration from Duke University. He is interested in marketing channels, durable goods promotion, and Bayesian statistical methods, particularly as they relate to estimating dynamic models.
Preyas S. Desai is Associate Professor of Business Administration, Fuqua School of Business, Duke University. He holds BE and MBA degrees from Gujarat University and MS and Ph.D. degrees from Carnegie Mellon University. His research interests include marketing strategy, management of distribution channels, and marketing of durable goods. His papers on these topics have appeared in journals such as Marketing Science, Management Science, and Quantitative Marketing and Economics.
Richard Staelin is Edward S. and Rose Donnell Professor of Business Administration, Fuqua School of Business, Duke University. Staelin's recent work includes studies on salesforce compensation, channel relationships, consumer information, search, service quality, strategy, and improving managerial decision making by blending statistical information with managerial knowledge. He has supervised more than 30 Ph.D. students and is the author of more than 80 journal articles. He has also served as the executive director of the Marketing Science Institute and editor of Marketing Science. He received the AMA/Irwin Distinguished Marketing Educators Award in 1996 and the Converse Award in 2000, both in recognition of his impact on the marketing profession.
J Marketing Research, Volume 42, Number 1, February 2005
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