A Theory of Retailer Price Promotion Using Economic Foundations: It's All Incremental
46 Pages Posted: 21 Dec 2014
Date Written: December 19, 2014
This paper presents the Theory of Retailer Price Promotions (TRPP) for consumer packed goods (CPGs). Specifically, the theory states that incremental retail sales generated by promotional price discounts are entirely incremental to the promoting manufacturer, the promoting retailer and the category, overall. In general, 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 TRPP.
Keywords: Microeconomics, Consumer Demand Theory, Consumer Packaged Goods
JEL Classification: M30, M31, C01, C11
Suggested Citation: Suggested Citation