Retail Promotions with Negative Brand Image Effects: Is Cooperation

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The paper considers a channel of distribution consisting of a single manufacturer and retailer. The manufacturer advertises in national media, to build up the image for one of his brands. The retailer promotes locally the brand, to increase short-term sales revenues, but these efforts are harmful to the brand image. We address the question whether it is possible, in this setup, that the two firms can agree to participate in a cooperative promotion program where the manufacturer pays part of the costs incurred by the retailer when promoting the brand. We consider a differential game, played over an infinite horizon. Two Nash equilibria serve as benchmarks for assessing the feasibility of the cooperative program: one in which the retailer is myopic and one in which she is far-sighted. The results show that a cooperative program is implementable if (i) the level of initial brand image is "small", or if (ii) the level of initial brand image is "intermediate" and promotion is not too damaging to the brand image. In the remaining cases a game without promotional support is played in which the retailer behaves myopically.

, 18 pages

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