Forward Buying by Retailers

Conventional wisdom in marketing holds that (1) retailer forward buying is a consequence of manufacturer trade promotions and (2) stockpiling units helps the retailer but hurts the manufacturer. This article provides a deeper understanding of forward buying by analyzing it within the context of manu...

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Bibliographic Details
Published in:Journal of marketing research 2010-02, Vol.47 (1), p.90-102
Main Authors: Desai, Preyas S., Koenigsberg, Oded, Purohit, Devavrat
Format: Article
Language:English
Subjects:
Carrying costs
Economic competition
Game theory
Inventories
Manufacturers
Manufacturing output
Marketing
Merchandising
Retail stores
Retail trade
Retailing
Sales promotions
Studies
Trade promotion
Uncertainty
Vendor supplier relations
Wholesale prices
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Summary:Conventional wisdom in marketing holds that (1) retailer forward buying is a consequence of manufacturer trade promotions and (2) stockpiling units helps the retailer but hurts the manufacturer. This article provides a deeper understanding of forward buying by analyzing it within the context of manufacturer trade promotions, competition, and demand uncertainty. The authors find that regardless of whether the manufacturer offers a trade promotion, allowing the retailer to forward buy and hold inventory for the future can, under certain conditions, be beneficial for both parties. Disallowing forward buying by the retailer may lead the manufacturer to lower merchandising requirements and change the depth of the promotion. In competitive environments, there are situations in which retailers engage in forward buying because of competitive pressures in a prisoner's-dilemma situation. Finally, when the authors consider the case of uncertain demand, they find further evidence of strategic forward buying. In particular, the authors find cases in which the retailer orders a quantity that is higher than what it expects to sell in even the most optimistic demand scenario.
ISSN:0022-2437
1547-7193
DOI:10.1509/jmkr.47.1.90