Balance of Power and Profit
The question comes down to whether scan downs and instant rebates are worth the heartache.
For manufacturers, the goal of the promotions may not be profitability, but rather increased share or reduced inventory. This drives some retailers crazy. “We’re not going to make people buy stuff who weren’t going to buy stuff before,” Wexler said. “All we’re doing is mortgaging the future on margin and we’re taking customers who would have paid more money and giving the product to them for less.”
Kusum Ailawadi, the Charles Jordan Professor of Marketing at the Tuck School of Business at Dartmouth College, Hanover, N.H., researches the impact of marketing strategies on businesses, categories and brand performance. As part of that research, she examines the balance of power between manufacturers and retailers, and the factors that determine their relative performance. Most of her work and consulting is with consumer package goods (CPG) companies that frequently use rebate promotions to boost sales. Offering rebates can generate a “sales bump” of as much as 300 to 400 percent, Ailawadi said. “But how much of that sales increase is really incremental?” she asked.