Chapter 9. How price promotions work: A review of practice and theory

In many markets, price promotions are a primary mechanism by which prices are adjusted. This chapter presents an overview of how retail price promotions work in theory and in practice. While there is a heavy emphasis on fast moving consumer goods (e.g., items sold in grocery stores or CPG), we discuss price promotions more broadly. We show that financial flows that support price promotions are typically larger than advertising expenditures and dwarf spending on R&D. We find that both theoretical and empirical models often fail to recognize that price promotions are the result of a long-term , planned, negotiated process in a vertical channel. Finally, the chapter bridges practice and academia by identifying opportunities for future research.