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.

Citation

Tang, Y.-C., Wang, Y.-M. and Huang, J.-Y. (2014), "Optimal promotional strategy for intra-category cross-selling: An application to culinary products in Taiwan", British Food Journal, Vol. 116 No. 1, pp. 80-90. https://doi.org/10.1108/BFJ-12-2011-0306