Effects of Channel Power on Trade Promotion Budget and Allocation: A Market Experimental Analysis

37 Pages Posted: 29 Jun 2009

See all articles by Vithala R. Rao

Vithala R. Rao

Cornell University - Samuel Curtis Johnson Graduate School of Management

Hong Yuan

University of Illinois at Urbana-Champaign - College of Business

Miguel Ignacio Gomez

Cornell University - Food Industry Management Program

Date Written: April 2009

Abstract

We design a market experiment to examine the impact of channel power on trade promotion budget and its allocation. Our experimental results show that a manufacturer with higher channel power offers a smaller percentage trade promotion budget and decreases allocation to discount-based promotions such as off-invoices. Conversely, a retailer with higher channel power tends to receive larger trade promotion budgets and to increase allocation to discount-based promotions. We validate these findings with econometric analysis of industry data. Overall, results suggest that market experiments can shed light on complex negotiations in the distribution channel for which industry data are often hard to obtain. We discuss implications of our results for managers and policy makers.

Suggested Citation

Rao, Vithala R. and Yuan, Hong and Gomez, Miguel Ignacio, Effects of Channel Power on Trade Promotion Budget and Allocation: A Market Experimental Analysis (April 2009). Johnson School Research Paper Series No. #18-09, Available at SSRN: https://ssrn.com/abstract=1410069 or http://dx.doi.org/10.2139/ssrn.1410069

Vithala R. Rao (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Hong Yuan

University of Illinois at Urbana-Champaign - College of Business ( email )

Champaign, IL 61820
United States

Miguel Ignacio Gomez

Cornell University - Food Industry Management Program ( email )

Department of Applied Economics and Management
Ithaca, NY 14853
United States
607-255-8472 (Phone)
607-255-4776 (Fax)