Retailer's response to special sales: Price discount vs. trade credit

Given the increasing saliency of special offers as a sales promotion tool, this paper analyses the advantages and disadvantages of the two most common payment reduction schemes, namely a decrease in the purchase price and a delay in the payment of the merchandise. Following some of the latest empirical evidence in the sales promotion field, the model includes a price-dependent demand, where price incorporates the ability of the retailer to pass on some of the savings to the customers. The integration of both the purchasing and the sale implications of the vendor's offer on the retailer's profit forms an integral part of the model. A numerical example highlights the main features of the model.