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| Promotion Effectiveness，Optimal Promotion Arrangement and Its Welfare Effects:the Compensation Role of Slotting Allowances |
| LI Chenhua,YAN Weilong,XU Zhenyu,ZHUANG Shangwen |
| School of Economics，Nanjing Audit University |
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Abstract In-store promotions can be performed either by the retailer or by the manufacturer, leading different results for the channel. The free-riding by a channel member not performing promotions can weaken the partner’s promotion incentive, but this distortion can be mitigated through transfer payment between them. Considering promotion effectiveness in a game model, we find that the retailer being in charge of promotions is optimal when the promotion has a good effect; with the decline of promotion effectiveness，the manufacturer must pay the retailer slotting allowances as compensation in order to achieve the optimal result; but the optimal arrangement will convert into the manufacturer being in charge of promotion and the retailer paying compensation or providing support if the promotion effectiveness is small enough. This shows that slotting allowances are compensations the manufacturer pays for the retailer’s promotions on the one hand, and that they are alternatives for promotion compensation on the other hand, thereby explaining the phenomenon of the manufacturer’s in-store-promotions. Moreover, extending the model to consumer surplus, we find that optimal channel promotion arrangement as a whole is also leading the maximum of consumer surplus. Slotting allowances or promotion compensation, as a coordination mechanism to achieve optimal promotion arrangement, can indirectly improve consumer welfare at the same time increasing firm profit.
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Received: 02 November 2017
Published: 15 February 2018
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Corresponding Authors:
LI Chenhua
E-mail: chhli@163.com
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2018, Vol. 38 
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