Trade promotion expenditures in the packaged goods industry have steadily increased from less than 35 percent in 1983 to almost 49 percent in 1994. In fact, when they peaked at 52 percent in 1993, the trade-promotion budget was more than twice the size of the media advertising budget.1 It is often claimed that this is symptomatic of a shift in power towards retailers and away from manufacturers. In 1996, the percentage of total retail sales made “on deal” across forty packaged goods categories included in the Market Fact Book averaged about 37 percent —up almost 5 percentage points from 1991.2
As firms sell more goods on deal, there are more complaints that promotions are eroding the power of brands. Complaints come from managers who prefer “everyday low prices” (EDLP) rather than strategies that involve price discounts and other allowances. Even those who accept the need for occasional consumer discounts often tout the advantages of EDLP to the trade. Some call this the “everyday low purchase price” (EDLPP); others refer to it as “back-door EDLP.”3 A single price to the trade sounds attractive for several reasons. First, trade promotion often involves reducing list prices to a retailer in return for a larger quantity bought and presumably sold by the... To read the complete article, login or sign-up using the form below.
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