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Trade Promotions Essay

691 words - 3 pages

Introduction:
Elasticity of demand is measure by the formula: %∆ quantity demand ÷%∆ price.
Price elasticity is affected by substitute’s products and available budget from consumers (Chopra & Meindl, 2007). Manufacturers prepared budget demand estimation and mismatches between estimation and real demand generates excess inventory (IBM, 2011). Trade promotion is the transaction among manufacturers and retailers for compensating with price reduction inventory differences reducing inventory at manufacturing level (Chopra & Meindl, 2007).
Increase Inventory Cycle but not demand:
Manufacturers deals with fix and variable cost. Increasing production a maximum capacity reduces total product cost ...view middle of the document...

But still excess inventories due to mismatches demands requires retailers facing financial and space problems for dealing with trade promotions activities looking for short term gains (Poddar, Donthu & Parvatiyar, 2013). As a result trade promotions generate an average of 40% of total profitability in the downstream of the supply chain (IBM, 2011). Additionally because of the economic crisis is a significant and increasing sector with high price sensitivity requesting significant discounts a retail level. Examples are bridge dresses discounts and high brand names discounts.
Conclusion:
Trade promotions are still an increasing activity in the market place (Poddar, Donthu & Parvatiyar, 2013). The excess Q of inventory at all levels and in different stages of production generates different markets and networks for retailers increasing their operations and margin activities (IBM, 2011). However not all products impact consumer preference for increasing demand. For that reason retailers can ended up with extra inventory with decrease value in the market place. As a result retailers requests higher price reductions increasing manufacturing losses. The proposed solution for a company like IBM is to generate the information needed in both sides of the SC for price analysis based on real demand ( sharing the pain) between all SC...

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