Creating win-win trade promotions: Theory and empirical analysis of scan-back trade deals

Manufacturer trade promotion spending is second only to cost of goods sold as aprofit-and-loss item, yet manufacturers often lose money on these deals as a result of forward-buying by retailers. The search for more effective forms of trade promotion and the availability of scanners at cash registers has led to the emergence of a new type of trade deal—the scan-back—that gives retailers a discount on units sold during the promotion rather than on units bought. We develop a theory to compare retailer pricing decisions and profitability under scan-back and traditional off-invoice trade deals. We show that, when the terms of the trade deal are identical, retailers prefer off-invoice trade deals and manufacturers prefer scan-backs. Manu-facturers can, however, redesign the scan-back to leave the retailer weakly better off and leav