Selling seasonal items such as Halloween decorations and Christmas gifts leads to a win-win-win outcome between retailers, manufacturers and customers, according to a recent Kelley School of Business study.
Krista Li, a co-author of the research and associate professor of marketing at Kelley, said the goal of the research was to understand why manufacturers and retailers advance sell products and how that operational decision affects consumers.
She said the project started in late 2020 when she and other researchers saw lots of holiday decorations being sold well in advance.
By selling earlier, Li said manufacturers and retailers can work to resolve a double marginalization issue. Essentially when manufacturers and retailers sell a good, there are two profit margins — one for the manufacturer and one for the retailer. Both businesses want to maximize profit and will therefore increase retail prices, which is bad for the consumer.
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When the prices are higher than the consumer prefers, she said they buy less products and there’s more market inefficiency. Without sufficient demand, firms also don’t generate as much profit and the whole society loses in the long run.
Li said advance selling works because it gives consumers an option to buy early and stockpile for the season. In giving that option, she said the retailers and manufacturers are only competing with their future self.
“That kind of inter temporal competition reduces retail and wholesale prices which stimulate demand and encourage consumers to buy more,” Li said.
In other words, the prices go down and consumers can buy more products. When their demand increased, retailers and manufacturers benefitted from the sales, and it created an ideal situation for all parties involved.
Granted, she said their research showed the benefit of advance selling varies depending on the holding cost of the perishable and nonperishable items.
For example, selling turkeys is more difficult to advance sell because they’re bulky and more difficult to keep fresh compared to other goods, she said.
Xi Li, the other co-author and associate professor of marketing at the University of Hong Kong, said in an email that firms are more likely to successfully advance sell by modifying the packaging design to make it easier to store.
He said such rationales can guide a firm’s regular marketing and operational decisions. And for a typical country, seasonal items account for one-fifth to one-third of all consumer purchases. In 2018, this meant $268 billion in the United States or more than 5.1% of the total retail sales in the country.
John Talbott, a senior lecturer at Kelley and the director of the center for education and research in retail, said he supports the research and thinks it’s anchored well in reality.
He said advance selling presents multiple advantages for all parties. For example, when retailers put new items out for sale, customers are more likely to respond to a higher price because of the novelty and artificially created necessity of the product.
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By introducing items earlier, Talbott said stores can also stretch out the season and deal with demand in a normal fashion. They can also assess trends and evaluate what’s worth producing more of and therefore communicate with the producer.
Opportunities for mutual wins are created when producers and retailers collaborate in a non-price way, he said.
“Continuously promoting Clorox at the end of the week at $1.49 a gallon instead of $1.99, consumers come to expect that price and the real price of that product becomes $1.49,” Talbott said.
When this happens, the promotion doesn’t increase consumption, it just degrades the value over time.
Talbott said he thought the research around retailer relationships proved important because “The research that Krista does around those retailer relationships is really important because that relationship is constantly evolving,” Talbott said. “Let’s look to find things that work together and also benefit the consumer as opposed to marking stuff down as zero-sum game.”