5. Sales Promotion Models

Excerpt

Firms spend a significant part of their marketing budgets on sales promotions. The Trade Promotion report (2005) indicates that during 1997–2004, promotion accounted for roughly 75% of marketing expenditures for US packaged goods manufacturers; the other 25% was for advertising. In 2004, 59% of the budget was spent on promotion to the trade (i.e., from manufacturers to retailers), and 16% on manufacturer promotions to consumers. Since the impact of promotions on sales is usually immediate and strong (Blattberg et al. 1995), promotions are attractive to results-oriented managers seeking to increase sales in the short term (Neslin 2002). In a recent meta-analysis, Bijmolt et al. (2005) report that the average short-term sales promotion elasticity is –3.63, which implies that a 20% temporary price cut+ leads to a 73% rise in sales.¹ There are few, if any, other marketing instruments that are equally effective. Because of this, coupled with the availability of scanner data, marketing researchers have been very active in developing models for analyzing sales promotions. …