In this paper we examine the issue of balancing media advertising (pull strategy) and trade promotions (push strategy) for manufacturers of consumer packaged goods utilizing a threestage game theoretic analysis and test model's implications with scanner panel data.
We develop a model of two competing manufacturers who distribute their brand to consumers through a common retailer. In the model the manufacturers directly advertise their brand to consumers and also provide trade deals to the retailer. Each manufacturer's brand has a loyal segment of consumers who buy their favorite brand unless the competing brand is offered at a much lower price by the retailer. The number of loyal consumers is different for the two brands and so is the strength of their loyalty to their favorite brand. The loyal consumers of the brand with stronger loyalty require a larger price differential in favor of the rival brand before they will switch away from their favorite brand.