Decomposition of the sales impact of promotion-induced stockpiling

Promotion-induced consumer stockpiling has a negative impact on manufacturers because it moves forward in time brand sales that would have occurred later at full margin. However, the resultant increase in consumer inventory has two potential benefits: increased category consumption and preemptive brand switches (the additional inventory of the promoted brand preempts the consumer's purchase of a competing brand in the future). Furthermore, there is a potential impact on repeat purchases of the stockpiled brand after the promotion. In this article, the authors present a model and simulation-based method to measure the benefits and costs of stockpiling and assess their relative magnitudes. They find that the benefits are substantial, but consumption appears to be the most important, followed by preemptive switching and then an increase in repeat purchases. These benefits easily offset the negative aspect of consumer stockpiling-namely, purchase acceleration by loyal customers who would have bought the brand at regular price at a later date.