Not All Promotions are Made Equal: From the Effects of a Price War to Cross-chain Cannibalization

Despite the huge amount of money allocated every year to sales promotions, brand managers still do not know how often and in what circumstances promotions are truly effective. This dissertation proposes an approach that allows managers to assess the impact of individual promotion events rather than the average effect of total promotional efforts. As such, more detailed information is gained on how promotions should be implemented. Moreover, sales promotions are not only evaluated in a business-as-usual environment, but their role and effectiveness during retailer induced price wars is also critically examined. As retailer competition tends to degenerate more often into price wars, this research offers recommendations to brand managers on whether they should accommodate retailers’ wishes to lower regular, list prices rather than focusing on temporary promotions. Finally, a brand manufacturer, when planning his promotional events for a retailer, should consider that a promotion can steal sales from rival supermarket chains. While these cross-chain effects are often negligible for the retailer, they are quite substantial for the manufacturer. Thus, to increase promotional effectiveness, a brand manager should carefully plan the promotional calendar across rival retailers.

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