Modeling the impact of sales promotion on store profits

Abstract: Millions of dollars are spent each year on sales promotion in grocery retailing. Despite this, no one really knows wheter promotions for individual items have positive, neutral, or negative effects on the store’s total profits. In this dissertation, an attempt is made to build a framework model that can be used to predict and evaluate how specific promotions affect item-level, category-level, and store-level profits. One major contribution is that the proposed model specifically incorporates store-traffic and cannibalization effects. The book consists of four parts: the first part is a review of the literature on sales promotion. The second part describes the development of a model for measuring the profit of retailer promotions. The third part shows the impact of sales promotion on profits for a number of hypothetical products. The fourth part measures the profit impact of sales promotions for 15 items in three product categories. The data used in this study were collected in a Swedish supermarket in cooperation with ICA.