Alternate financial incentives to regular credit/price discounts for extraordinary purchases

Temporary trade promotions can take in practice many forms, especially when competitive pressures lead vendors to generate new and creative alternatives to the standard price discount or delay of payment. It is the purpose of this paper to develop the retailer's profit-maximizing decision-making strategy when confronted with any one of three such offers. Important issues under consideration are how much of the offer the retailer should pass on to its own customers, the kind of retail promotion needed to accompany the vendor's trade promotion, and what effect these policies have on the retailer's demand for its own products. The economic interpretation of the optimal solution is discussed and some computational experience reported. Included in the latter is the estimation of alternate forms of these offers yielding similar objectives, be they price, length of the discount period, vendor's revenue, special order size, or retailer's benefit.