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Unformatted text preview: s whether to accept such a trade promotion and then promote the Sharp HDT V
to its customers, it needs to assess the promotion's impact on its own profitability. Such a promotion
may be effective for Sharp but not for Costco.
T o evaluate a trade promotion, the retailer considers:
T he realized margin from the promotion.
T he cost of the additional inventory carried due to buying more than the normal amount.
T he potential increase in sales from the promoted merchandise.
T he long-term impact on sales of the promotion.
T he potential loss suffered when customers switch to the promoted merchandise from more
profitable T Vs.
connect.mcg r aw- hill.com/connect/hmEBook.do?setTab= sectionTabs 8/10 9/15/13 M cGr aw- Hill Connect - Ebook T he additional sales made to customers attracted to the store by the promotion.53
When the HDT V's price is reduced to $1199.00, Costco will sell more Sharp HDT Vs than it normally
does. But Costco's margin on the HDT Vs will be less because the required retail discount of $350
isn't offset by the normal wholesale discount of $300. In addition, Costco might suffer losses because
the promotion encourages customers to buy these special HDT Vs, which have a lower margin than
Costco makes on its other HDT Vs. In contrast, the promotion may attract customers who don't
normally shop at Costco but who will visit to buy the Sharp HDT V at the discounted price. T hese
customers might buy additional merchandise, providing a sales gain to the store that it wouldn't have
realized if it hadn't promoted this item.
p. 558 CHECK Y OURSELF
1. What are various forms of sales promotions?
2. What factors should a firm consider when evaluating a sales promotion? 46. Pers onal c ommunic at ion wit h Rob Pric e, VP of Ret ail Mark et ing, CVS, June 16, 2009; Carol Angris ani, “CVS Moves to Pers onaliz ation,” SN: Supermark et News 56, no. 2 (Marc h 24, 2008), p. 29.
47. St ephanie Clifford, “W eb Coupons Know Lot s about You, and They Tell, ” The New York...
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- Winter '08