Pass - through timing ∗

Trade promotions are the most important promotional tool available to a manufacturer. However trade promotions can achieve their objective of increasing short-term sales only if the retailer passes through these promotions. Empirical research has documented that there is a wide variation in retail pass-through across products. However little is known about the variations in pass-through over time. This is particularly important for products with distinct seasonal patterns. We argue that extant methods of measuring pass-through are inadequate for seasonal products. We therefore introduce a measurement approach and illustrate it using two product categories. We find interesting differences in pass-through for loss-leader products versus regular products during high demand and regular demand periods. We find that retailers use a deep and narrow pass-through strategy (high pass-through on ∗The paper is based on the second essay of the first author’s dissertation at New York University. The authors thank Joel Steckel, Yuxin Chen, Peter Golder and Pinelopi Goldberg for their comments. We also thank participants at the 2003 Marketing Science Conference at the University of Rotterdam for their comments. We thank the editor Peter Rossi and an anonymous reviewer for their constructive comments and suggestions for improving the paper. S. Meza ( ) Rotman School of Management, University of Toronto, Toronto, ON M5S 3E6, Canada e-mail: [email protected] K. Sudhir Yale School of Management, 135 Prospect St, PO Box 208200, New Haven, CT 06520-8200, USA e-mail: [email protected] Springer 352 S. Meza, K. Sudhir loss-leader products, but small pass-through on regular products) during periods of regular demand and broad and shallow pass-through strategy (smaller, but similar pass-through on both loss-leader and regular products) during periods of high demand. Loss leader products continue to obtain higher pass-through in high demand periods, if the category’s high demand period is also a high demand period for other product categories as well.