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Excerpt from A Theory of Consumer Promotions: Managerial Implications
Promotion expenditures have grown dramatically in recent years, reaching an estimated $60 billion in Industry reactions to this trend are mixed. Hertz chair, Olson, finds such expenditures counter profitable.2 7-up's chair, Winter, finds them essential and productive.3 Bystanders attribute the confused Spending in part, at least, to the management of promotion dollars. An Ad Age article titled Room at the Top in Promotions, suggest that promotion management has remained clerical despite the fact that promotion expenditures have grown from 52 to 602 of a typical marketing budget. In Sales Promotion Fast Growth, Faulty Management, Strang (1976) suggests that promotion expenditures have been used by brand managers to optimize their career paths rather than their firms' profits.
In this paper we will explore the popular myth which suggests that promotional spending is inherently irrational since it places manufacturers in a situation analogous to the prisoner's dilemma. We then develop rules of thumb that a profit maximizing manufacturer can use to allocate promotional dollars across products in a line and to sequence promotions through time.
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