BLOOMINGTON — It isn’t even Halloween, yet some retailers already putting out Christmas merchandise and promoting gift buying to get an early jump on holiday sales.
But it’s not just about getting a jump on holiday shopping for retailers. Advance sales of seasonal items also benefit consumers with reduced retail prices, according to new research from the Indiana University Kelley School of Business.
The article “Advance Selling in Marketing Channels,” accepted for publication in the Journal of Marketing Research, reported that advance selling can alleviate a common supply-chain issue – double marginalization – when manufacturers, wholesalers, and retailers apply their own set of profit margins that lead to higher prices for consumers.
“Advance selling results in a win-win-win outcome,” wrote Krista Li, associate professor of marketing and Weimer Faculty Fellow at the Kelley School and co-author of the study. “This benefit comes from offering retailers or consumers the option to buy either in the advanced period or in the spot period, which induces manufacturers, or in some cases retailers, to compete with their future selves because consumers can buy now or wait to do so later. As a result, advance selling constraints manufacturers’ pricing power and reduces average retail prices.”
The spot period is when there is an immediate need to make a purchase, like candy right before Halloween or stocking stuffers at Christmas.
Sales of seasonal products such as holiday decorations, clothing, and summer or winter entertainment items and sports gear typically account for a fifth to one-third of all consumer purchases during the year.
“Manufacturers frequently advance sell seasonal products to consumers through retailers and therefore face unique challenges to coordinate channels effectively over time,” the researchers wrote. “In particular, when a manufacturer advance sells with a low wholesale price, its retailer may stockpile the product and spot sell it during the consumption season. Our results suggest that retailers such as Walmart and Target should not advance sell seasonal products when they can stockpile products for spot selling.”
Their findings also suggest that manufacturers should advance sell their products when a retailer can’t stockpile seasonal items such as holiday decorations and the holding cost is low.
The benefits of advance selling are higher if the product is easier for producers to stockpile, the retailer cannot stockpile them, and the manufacturer sets dynamic wholesale prices, where the before-season price does not have to be the same as the in-season price.
The study presumes that consumers “are sophisticated and forward-looking in making purchase decisions,” but it doesn’t specifically consider those who stock up on candy corn or decorations at “after holiday” sales.
Li’s co-author is Xi Li, an associate professor of marketing at the University of Hong Kong.
Information: George Vlahakis, Kelley School of Business.
