Cross-promotion as tactical alliance: Theory and implementation.

The growth of promotional wars among brands in the 1980s, combined with the fact that promotions are mostly used by the current buyers of the brand which cannibalizes regular sales, has resulted in several innovative promotional tactics that look at brand competition in a broad strategic framework. Cross-promotion is one such tactic whereby a firm promotes its brand (say A), through a different brand (say B) in a non-competing product category by using B as a device to carry its coupons which can only be redeemed for a purchase of A. Examples of cross-promotions abound in the marketplace: manufacturer's coupons of Dannon yogurt on Kellogg cereals redeemable on purchase of Dannon, etc. This dissertation develops an analytical framework to demonstrate the idea that competition among brands need not be confined within the same product category; a brand can fight its competitors in the same product category by aligning itself strategically with and promoting through other brands in other product categories. We demonstrate here in the context of a game theoretic model, why cross-promotion might be more profitable than brand-specific promotions. Several other propositions are stated and proved by extending the basic model: which brand among a pair of partners should carry the coupons; the nature of the partner to select for a cross-promotion; the effect of increasing competition, etc.