Optimal promotional strategy for intra-category cross-selling An application to culinary products in Taiwan

Abstract

Purpose - The aim of this paper is to investigate an optimal promotional strategy of intra-category cross-selling on culinary products for the fiercely competitive, fast-moving consumer goods (FMCG) industry. Design/methodology/approach - A linear regression model and a Markov switching autoregressive model is used, that incorporates a retailing demand process to capture a nonlinear structure among promotional budget allocation, and evaluate promotional performance, and optimal promotional frequency within a given time span. Three product categories are applied with 39 months of time-series data from a multinational packaged food company in Taiwan. Findings - The result shows that most previous decisions on promotional budget allocation are non-optimal - most promotional investments were either extended too long or allocated too low in stimulating sales. Research limitations/implications - This study suggests implications for the brand or category manager in removing such non-optimal promotional policies. Originality/value - Previous promotional investment is evaluated by comparing the changes in promotional budget allocation. Markov's switching feedback rules are then applied to determine the proper length of equilibrium state with and/or without promotion. Finally, effective decision rules on magnitude, duration, and frequency of intra-category promotional strategy are induced.