Duration of price promotion and product profit: An in-depth study based on point-of-sale data |
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Institution: | 1. University of Queensland Business School, University of Queensland, Brisbane, QLD, Australia;2. Adelaide Business School, The University of Adelaide, Adelaide, SA, Australia |
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Abstract: | Anecdotal evidence has shown that retail price promotions can help small and medium-sized retailers enhance their sales, and thus profits. However, most marketing managers usually stop a promotion after a certain duration. This study aims to explain why these retailers discontinue their price promotion. Our approach posits that overall contributions of a price promotion to the product profit progressively diminish with time. In this study, we present a theoretical framework to explain the relationship between duration and profit effects of price promotion and propose statistical models to empirically examine this framework using point-of-sale (POS) data. Our findings provide empirical support that the effect of price promotion on the product profit has a downward trend with elapsed time. The results are helpful for marketers to understand how price promotions dynamically influence product profit and when the promotion should be terminated. |
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Keywords: | Duration of price promotion Elapsed time Product profit Customer traffic Panel estimation Point-of-sale data |
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