Finance

Stockpiling by consumers in retail channels

March 24, 2015

Everyone knows them: supermarket promotions of the "buy one, get one free” variety. For many consumers, these kinds of promotions offer an incentive to stock up. The effect of such promotions also appears to be beneficial for the retailer and the producer - after all, it leads to more sales in the short term.

Image: © Nationale Beeldbank

Rob Brinkerink and Michael Corbey wonder in a recent publication whether (and when) stockpiling due to price promotions is beneficial for the various parties in the retail channel. However, interests may differ. Just think of the tension between the retailer and the manufacturer. A price promotion may lead consumers to switch store and (temporarily) shop somewhere else. This effect is beneficial for the new retailer, but not necessarily beneficial to the manufacturer because store switching does not automatically lead to a structural increase in the manufacturer’s sales. There are indications that this may lead to more sales of some products such as chocolate, ice cream, and soda. But with articles such as salt, vacuum cleaner bags, and coffee filters stockpiling due to promotions does not lead to increased sales for the manufacturer.

But the opposite is also possible. Stockpiling can lead to consumers switching brands and this is good for the manufacturer but not necessarily beneficial to the retailer. 

It is, of course, also possible that new consumers will buy the product on offer; this is beneficial to both the retailer and manufacturer. 

The above effects of stockpiling are usually classified as short-term effects. But long-term effects also play a role. Think of decreased loyalty to the brand (brand loyalty) and/or the retailer (store loyalty). It may also be that customers will start stockpiling systematically by only buying products when they are being promoted by any retailer. 

But these are not all the effects. Literature research by Brinkerink and Corbey yielded nine root causes that appear to have an impact on stockpiling. The literature mentions six impacting factors, which may lead to a strengthening or weakening of the relationship between the root causes and stockpiling. In several interactive sessions, an attempt was made to display the root causes and impacting factors in a conceptual model in which the arrows represent (positive or negative) relationships between root causes. In these interactive sessions the conceptual model and in particular the possible relationships (arrows) in the model were discussed with two retail experts and a dozen sales and marketing officers of an A-brand retail-manufacturer.

The article was published in the Maandblad voor Accountancy en Bedrijfseconomie, Volume 89, No. 1/2, January-February 2015, pp. 28-33. You can get more information from the second author at: mhcorbey@tias.edu
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