Economic Foundations of Retailer Price Promotion: It's All Incremental


This paper states that under several conditions that completely apply to CPGs, incremental retail sales generated by promotional price discounts are entirely incremental to the JORM_Paper_Kurt_Jetta.jpgpromoting manufacturer, the promoting retailer and the category, overall. 

In general, and as observed examining traditional retail point-of-sale data, this implies that there is no post-period reduction in sales (dip) either in the short or long-term, nor is there a reduction of sales for competing brands, nor is there a reduction of sales for the promoted item in competing retailers. It is a Complete Category Expansion Effect (CCEE). The paper discusses the underlying theories of consumer demand that support the CCEE and the lack of economic rationale offered by prior literature. A calibration-simulation example is offered to support the CCEE.


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