Forward Buying by Retailers

Journal of Marketing Research, Vol. 47, No. 1, pp. 90-102, 2010

14 Pages Posted: 17 Nov 2011

See all articles by Preyas S. Desai

Preyas S. Desai

Duke University - Fuqua School of Business

Oded Koenigsberg

London Business School - Department of Marketing

Debu Purohit

Duke University - Fuqua School of Business

Date Written: 2010

Abstract

Conventional wisdom in marketing holds that retailer forward buying (1) is a consequence of manufacturer trade promotions and (2) stockpiling units helps the retailer but hurts the manufacturer. This paper provides a deeper understanding of forward buying by analyzing it within the context of manufacturer trade promotions, competition and demand uncertainty. We find that regardless of whether the manufacturer offers a trade promotion or not, allowing the retailer to forward buy and hold inventory for the future can, under certain conditions, be beneficial for both parties. Disallowing forward buying by the retailer may lead the manufacturer to lower merchandising requirements and change the depth of the promotion. In competitive environments, there are situations in which retailers engage in forward buying due to competitive pressures in a prisoners’ dilemma situation. Finally, when we consider the case of uncertain demand, we find further evidence of strategic forward buying. In particular, we find cases in which the retailer orders a quantity that is higher than what it expects to sell in even the most optimistic demand scenario.

Suggested Citation

Desai, Preyas S. and Koenigsberg, Oded and Purohit, Devavrat, Forward Buying by Retailers (2010). Journal of Marketing Research, Vol. 47, No. 1, pp. 90-102, 2010. Available at SSRN: https://ssrn.com/abstract=1960266

Preyas S. Desai

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Oded Koenigsberg (Contact Author)

London Business School - Department of Marketing ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Devavrat Purohit

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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