Sales promotions and channel coordination

Consumer sales promotions are usually the result of the decisions of two marketing channel parties, the manufacturer and the retailer. In making these decisions, each party normally follows its own interest: i.e. maximizes its own profit. Unfortunately, this results in a suboptimal outcome for the channel as a whole. Independent profit maximization by channel parties leads to a lack of channel coordination with the implication of leaving money on the table. This may well contribute to the notoriously low profitability of sales promotions. This paper first shows analytically why the suboptimality occurs, and then presents an empirical demonstration, using a unique dataset from an Efficient Consumer Response (ECR) project; ECR is a movement in which parties work together to optimize the distribution channel). In this dataset, actual profit is only a small fraction of potential profit, implying that there is a large degree of suboptimality. It is important that (1) channel parties are aware of this suboptimality; and (2) that they have tools to deal with it. Solutions to the channel coordination problem should ensure that the goals of the individual channel parties are aligned with the goals of the channel as a whole. The paper proposes one particular agreement for this purpose, called proportional discount sharing. Application to the ECR data shows a win-win result for both the manufacturer and the retailer. Recognition of the channel coordination problem by the manufacturer and the retailer is the necessary starting point for agreeing on a way of solving it in a win-win fashion

Environment change, economy change and reducing conflict at source

At a time when fossil fuel burning, nationalism, ethnic and religious intolerance, and other retrograde steps are being promoted, the prospects for world peace and environmental systems stability may appear dim. Yet now is it the more important to continue to examine the sources of conflict. A major obstacle to general progress is the currently dominant economic practice and theory, which is here called the economy-as-usual, or economics-as-usual, as appropriate. A special obstacle to constructive change is the language in which economic matters are usually discussed. This language is narrow, conservative, technical and often obscure. The rapid changes in the environment (physical and living) are largely kept in a separate compartment. If, however, the partition is removed, economics -as-usual, with its dependence on growth and its widening inequality, is seen to be unsustainable. Radical economic change, for better or worse, is to be expected. Such change is here called economy change. The change could be for the better if it involved an expansion of the concept of economics itself, along the lines of oikonomia, a modern revival of a classical Greek term for management or household. In such an expanded view, not everything of economic value can be measured. It is argued that economics-as-usual is the source of much strife. Some features are indicated of a less conflictual economy - more just, cooperative and peaceful. These features include a dignified life available to all people as of right, the word 'wealth' being reconnected with weal, well and well-being, and 'work' being understood as including all useful activity

On the macroeconomics of uncertainty and incomplete markets

Presidential address for the Twelfth World Congress of the International Economic Association, summarising semi-formally the author's recent work and concerns. Uncertainty and incomplete markets breed demand volatility as well as price and wage rigidities. The conjunction of these leads to multiple, volatile supply-constrained equilibria, typically reflecting coordination failures and apt to display persistence - as documented by three supporting theorems. Specific implications are linked to the conclusions that we should take coordination failures seriously, try to obviate demand volatility and try to by-pass price and wage rigidities