Game Theory and Empirical Generalizations Concerning Competitive Promotions

This paper offers the generalization that competitive promotions are mixed strategies. First an empirical regularity is established that promotions are independent across competitors. This regularity is then elaborated on in the context of a promotion game. The promotion game is linked to observable outcomes, and a classification of possible situations is developed. In particular, the classification includes the prisoners' dilemma, battle of the sexes, and marketing models of promotion competition. The evidence for the generalization comes from a variety of product markets, spanning trade promotions, retail price reductions, and retail promotions such as advertised specials. The product markets include coffee, baby diapers, toilet tissue, saltines, dishwashing fluid, ketchup, and detergents, among others. The data in some cases were from cooperating grocery chains and in others from IRI scanner panels. The evidence from extant research and from new analyses is presented. Each situation is identified as belonging to one or another element of the classification. Based on the entirety of the evidence, there is strong support for the proposition that competitive promotions are mixed strategies. A second generalization, based on more limited data, is that the depth of promotion has a bimodal distribution. Implications of the generalizations both for managerial practice and future research are discussed.