The impact of the distance-dependent promotional effect on the promotion cost sharing decision

This paper considers the promotion cost sharing decision between a supplier and a retailer. The customer demand is affected by both national and local promotional effects while the local promotional effect on a customer is dependent on the distance between the retailer and this customer. We propose a continuous approximation approach to modelling the sum of the customer demand in the whole market area served by the retailer. A model is provided to help managers decide on the retail price, the local advertising expenditure, the national advertising expenditure, and the supplier participation rate, with consideration of the influence of distance on the promotional effect. We also find that the supplier's promotion cost sharing rate increases as the market size increases or the influence of distance on the promotional effect decreases. A numerical example is given to show that the nature of distance-dependent promotional effect has a significant impact on the decisions and profits.