Why do Retailers End Price Promotions: A Study on Duration and Profit Effects of Promotion

Evidence shows that price promotion can help small and medium-sized retailers to increase their sales and profits. However, retailers usually stop the promotion after a certain duration. This study tries to explain why retailers discontinue a price promotion. Our approach assumes that overall contributions of price promotion to retailers´ profits decrease progressively with time after the promotion begins. We propose simple econometric models to investigate the relationship between promotion duration and the overall effects of price discount on retailers´ profits, by using point-of-sale data from Japan´s supermarkets. The finding suggests that overall effects of price promotion on retailers´ profits have a downward process with the elapsed time. We hope our paper could be helpful for marketers to understand the dynamic profits effects of price promotion, and to set optimal duration of promotions. The paper also discusses management implications and future research directions at the end.