Pass-through timing |
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Authors: | Sergio Meza K Sudhir |
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Institution: | (1) Rotman School of Management, University of Toronto, Toronto, ON, M5S 3E6, Canada;(2) Yale School of Management, 135 Prospect St, PO Box 208200, New Haven, CT 06520-8200, USA |
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Abstract: | Trade promotions are the most important promotional tool available to a manufacturer. However trade promotions can achieve their objective of increasing short-term sales only if the retailer passes through these promotions. Empirical research has documented that there is a wide variation in retail pass-through across products. However little is known about the variations in pass-through over time. This is particularly important for products with distinct seasonal patterns. We argue that extant methods of measuring pass-through are inadequate for seasonal products. We therefore introduce a measurement approach and illustrate it using two product categories. We find interesting differences in pass-through for loss-leader products versus regular products during high demand and regular demand periods. We find that retailers use a deep and narrow pass-through strategy (high pass-through on loss-leader products, but small pass-through on regular products) during periods of regular demand and broad and shallow pass-through strategy (smaller, but similar pass-through on both loss-leader and regular products) during periods of high demand. Loss leader products continue to obtain higher pass-through in high demand periods, if the category's high demand period is also a high demand period for other product categories as well. |
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Keywords: | Pass-through Retail competition Loss leaders Trade promotions |
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