Pull Promotions and Channel Coordination

Eitan Gerstner and James D. Hess

This paper recommends that manufacturers consider a pull price promotion as a coordination device in an independent channel of distribution. Uncoordinated decisions of both manufacturer and retailer to charge high prices can break down the effort to expand the market, resulting in losses to the channel as a whole. We show that manufacturers can enhance channel price coordination by designing pull price discounts that target price-conscious consumers. The increased price coordination improves total channel profits and consumer surplus. Supporting pull with push increases the probability of coordination.

(Channels of Distribution; Promotions; Pricing Research)