The effects of competitive context on consumer response to price changes

ABSTRACT

This paper aims to understand how a brand’s price level, relative to its competitors, will affect consumers’ responses to price changes of the brand. The study uses experiments to examine brand choice responses to price increases and decreases across contexts differing in competitor brands and their respective prices. These experiments are conducted with six consumer goods categories. The research identifies three key factors that affect the size of responses to brand price changes – (1) passing a competitor brand’s price, (2) narrowing versus widening the price gaps with competitors, and (3) whether competitors are predominantly higher or lower priced brands.     

Predicting future purchases with the Poisson log-normal model

The negative binomial distribution (NBD) has been widely used in marketing for modeling purchase frequency counts, particularly in packaged goods contexts. A key managerially relevant use of this model is Conditional Trend Analysis (CTA)—a method of benchmarking future sales utilizing the NBD conditional expectation. CTA allows brand managers to identify whether the sales change in a second period is accounted for by previous non-, light, or heavy buyers of the brand. Although a useful tool, the conditional prediction of the NBD suffers from a bias: it under predicts what the period-one non-buyer class will do in period two and over predicts the sales contribution of existing buyers. In addition, the NBD's assumption of a gamma-distributed mean purchase rate lacks theoretical support—it is not possible to explain why a gamma distribution should hold. This paper therefore proposes an alternative model using a log-normal distribution in place of the gamma distribution, hence creating a Poisson log-normal (PLN) distribution. The PLN distribution has a stronger theoretical grounding than the NBD as it has a natural interpretation relying on the central limit theorem. Empirical analysis of brands in multiple categories shows that the PLN distribution gives better predictions than the NBD.     

Brand-Pack Size Cannibalization Arising from Temporary Price Promotions

This study investigates how price promotions for one pack-size of a brand steal sales from the other pack-sizes of the same brand. To do so, the study examines twelve grocery product categories (seven US, three UK, two Australian). The analysis finds heavy cross-pack cannibalization. On average, 22 percent of the sales uplift for a promoted brand-pack size comes from other pack sizes of the same brand. Cross-pack cannibalization most typically occurs in the week of the promotion, but also transfers future week's sales away from the non-promoted pack size in 31 percent of cases. The study finds higher cannibalization is associated with packs that sell for a higher dollar value than others sold under the same brand; whereas higher price-per-weight, a packaging difference, and the item having a larger relative share of sales in the brand portfolio, are linked to lower cannibalization. Also examined is the impact of pack-size cannibalization on promotion profitability for retailer PLs. That analysis finds PL price promotions have generally negative impacts on PL profits, and that pack-size cannibalization exacerbates this negative outcome. The results suggest both retailers and manufacturers should carefully consider pack-size cannibalization when evaluating the outcome of temporary price promotions. The study also provides some evidence-based recommendations from which managers can attempt to minimize such cannibalization.     

Consideration sets for financial services brands

This study examines the extent of consumer information search and consideration of financial services brands. It uses data from two surveys of purchasing behavior. This study finds a surprisingly low level of consumer consideration, either by personal enquiry or via the internet. The most common consideration set comprised only one brand, and this was the case for both high-value and low-value services. The managerial implication is that services marketers should make brand salience a top priority, with the competitiveness of their offer not being the primary driver of sales. If a financial services brand is salient to a consumer, there is a very high chance they will purchase that brand, without extensive comparison of the merits of alternatives.     

Comparing retailer purchase patterns and brand metrics for in-store and online grocery purchasing

ABSTRACT

Research on how vulnerable consumers navigate various marketplaces and service interactions, developing specific consumer skills in order to empower themselves during such exchanges, has received inadequate attention. This paper contributes to this area by empirically drawing on a multi-perspective go-along travel study, consisting of a combination of in-depth interviews and observations of consumer and service provider interactions in mobility services. It addresses both factors that are a source of vulnerability and forms thereof during service interactions, thus unearthing critical mechanisms that explain why vulnerability comes into being. Further, the finding of four distinct forms of active coping strategies, building on the dimensions of proactiveness/reactiveness and explicit/implicit articulation, and how these are related to different forms of vulnerability, provides an understanding of coping with vulnerability during consumer and service provider interactions.     

Testing the robustness of brand partitions identified from purchase duplication analysis

Purchase duplication analysis examines the extent to which buyers of any brand A also buy other brands B, C, D and so on. A generalised finding from its use is that brands share their buyers with other brands approximately in-line with the size of those other brands. The approach is widely used by analysts and managers. One important use of the method is to identify partitions – brands that share buyers at a higher than expected rate. Partitions may form among competitor brands, but also among ‘same name’ or sub-brands that share a parent name (e.g. Coke, Diet Coke). A partition among same-name brands means they are cannibalising each other. Whether one’s focus is on cannibalisation within a portfolio, identifying close competitors, or to generally understand market structure, duplication analysis can provide insights. However, there are two potential confounds to its use: family buying and buying multiple brands on the same occasion. This study tests if these two factors confound the use of purchase duplications, using data from 12 grocery categories. The principal finding is that the identification of partitions is robust to these confounds. The study finds partitions among same-name brands are common and are also not due to these confounds.     

The persistence of excess brand loyalty over multiple years

This study examines the extent to which packaged-goods brands exhibit excess loyalty over a multi-year period. Brand loyalty for 300 brands in 20 UK product categories are compared to theoretically expected loyalty levels calculated using the Dirichlet model. Results show that while many brands show excess loyalty in a particular year (31%), fewer of them (25% and 22%) exhibit excess loyalty over 2 and 3?years, respectively. Almost all the brands that do show persistent excess loyalty are private-label brands or are market-share leaders (either the biggest or the second-biggest brand in the market). Therefore, excess loyalty over multiple years is a rare occurrence for a brand unless it is a market leader or a private-label brand. The study also shows that 38% of all high-share brands have consistent excess loyalty, and 37% of all private-label brands have consistent excess loyalty. These results suggest that existing explanations in the literature as to the sources of excess loyalty need further investigation. The reason is that those explanations relate to distribution effects, which should be similar across such brands. They therefore imply that most high-share and private-label brands should exhibit excess loyalty. The study suggests several avenues for further research to identify the reasons why some high-share or private-label brands show excess loyalty and others do not.     

Organizational learning in high-technology purchase situations: The antecedents and consequences of the participation of external IT consultants

Typically, research on organizational learning has been conceptual in nature. In a departure from this tradition, we develop and test a structural model of organizational learning in the context of the purchasing of an expensive and complex product in the information technology (IT) area. The key focus of our research is the participation of external IT consultants and our model links seven explanatory constructs that are consistent with the process school of thought in organizational learning. More specifically, two organizational variables-formalization, strategic importance-and two individual-level variables-stakeholding, prior experience-are viewed as antecedents of consultant participation. In contrast, we view internal search effort, external search effort, and organizational learning as consequences of consultant participation. As predicted, all four antecedent variables affected consultant participation. Moreover, we found that, while consultant participation had a positive impact on internal search effort and organizational learning, its impact on external information search effort was negative.     

Further evidence on the predictive accuracy of the verbal probability scale: The case of household bill payments in Australia

This study examined how well the verbal probability scale predicted shortterm penetration levels for methods of paying household bills. The overall error of prediction was 17 per cent (not 17 percentage points but 17 per cent of the estimated value). This is a good result in comparison to previous research that has used attitudinal, intentions or probabilistic measures. The verbal probability scale was markedly inaccurate for one particular bill payment method, but this is attributed to respondents' misinterpretation of the de.nition of this payment method when providing responses. The major source of error was respondents who gave a zero probability for using a particular method, but then did use that payment method in a subsequent fourweek period. This source of error is consistent with previous research on the prediction of future behaviour. The study also found that this particular source of error was not independent among respondents. Respondents who made this particular error of prediction for one bill payment method (ie gave a zero probability but then used that payment method) were more likely to do the same for another bill payment method. Overall, the results support the aggregate-level predictive ability of the verbal probability scale to estimate penetration levels. The study, however, highlights that all methods, whether attitudinal, intentions or probabilistic estimates of future demand, suffer from a degree of measurement error. If probabilistic estimates are to be used as an intermediate variable against which the impact of a marketing intervention is judged, the planned impact of that intervention would need to be large enough not to be confounded with measurement error.