The Role of Retail Competition,Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity

We study the determinants of sensitivity to the promotional activities of temporary price reductions, displays, and feature advertisements. Both the theoretical and empirical literatures on price promotions suggest that retailer competition and the demographic composition of the shopping population should be linked to response to temporary price cuts. However, datasets that span different market areas have not been used to study the role of retail competition in determining price sensitivity. Moreover, little is known about the determinants of display and feature response. Very little attention has been focused on retailer strategic decisions such as price format (EDLP vs. Hi-Lo) or size of stores. We assemble a unique dataset with all U.S. markets and all major retail grocery chains represented in order to investigate the role of retail competition, account retail strategy, and demographics in determining promotional response. Previous work has not simultaneously modeled response to price, display, and feature promotions, which we do in a Bayesian Hierarchical model. We also allow for retailers in the same market to have correlated sales response equations through a variance component specification. Our results indicate that retail strategic variables such as price format are the most important determinants of promotional response, followed by demographic variables. Surprisingly, we find that variables measuring the extent of retail competition are not important in explaining promotional response.     

The Impacts of Retail Promotions on the Demand for Orange Juice: A Study of a Retail Chain

This study examined the impacts of retail promotions on the demand for five brands of orange juices for a retail chain (referred to as Retailer X) and its competitors using the Rotterdam model. Results show that the combination of feature ads and displays had the largest impacts on retail revenue among the four promotional tactics considered, whereas temporary price reductions had no advertising impacts on retail revenue. Results also show that when Retailer X promotes an orange juice (OJ) brand using any of the tactics, a larger portion of the increased demand for the promoted brand comes from reduced demand for other brands of OJ in the same store or chain.A smaller portion comes from the decreased demand in Retailer X's competing stores in the same trading area.     

Price promotion landscape in the US and UK: Depicting retail practice to inform future research agenda

Price promotions dominate the modern grocery retail environment. This paper documents the prevalence and nature of these price promotions (i.e., deal types and discount depths) in the United States and United Kingdom. The analysis comprises of 23 categories across five retail chains. One of the key findings is that multiple-unit promotions – deal types that have been under-researched – account for approximately half of all price promotion activity. The analysis also identifies an increase in price promotion prevalence since the Global Financial Crisis, predominantly driven by national brand promotions. This research carries important implications for the alignment of academic research with common industry practices.     

Chain-wide and store-level analysis for cross-category management

When planning and implementing their price-promotions strategy, retail chain managers face the typical dilemma of “thinking globally, but acting locally.” In other words, they must plan their strategy, keeping in mind the global chain-level impact of their promotions, to deliver on the commitments made to manufacturers. At the same time, managers need to make sure that the implementation of such strategy takes into account the fact that each store caters to a different market with different needs and responses to marketing programs. Moreover, the retail chain manager must consider not only how the promotion of a brand affects competing brands and total category sales, but also how it could affect sales in other categories.Our proposed model addresses these two important aspects of chain-wide and store-level cross-category analysis. First, our proposed factor-regression model takes store differences and longitudinal market shifts into account, thereby providing the retail chain manager with unbiased global, chain-level estimates. It also provides stable local estimates of cross-category promotion effects at the store level. Second, while allowing this flexibility, our proposed model is parsimonious enough over existing alternatives, making it particularly useful for chain-wide and store-level cross-category analysis.We apply the proposed model to store-level data from one retail chain, comparing it with several competing approaches, and demonstrate that it provides the best balance between flexibility and parsimony. Most importantly, we show that the proposed model provides useful insights regarding cross-category effects at the chain-level, for individual stores, and their patterns across stores.     

Understanding the Characteristics of Price Elasticities for Frequently Purchased Packaged Goods

This study examines category and brand level factors of packaged goods to determine which ones are related to brand price elasticities. A new nonparametric method of elasticity calculation is presented that is suited to situations where detailed feature and display information is not available. To obtain results that lead to strong and reliable generalisations, we examine 26 categories and 110 brands using store level weekly scanner data. We also synthesise our results with four previous studies that have looked at determinants of price elasticities. Three factors consistently emerge as important drivers of elasticity. They are, competitive intensity in the category, whether or not the product is storable and the brand market share. A further, less certain, factor is the frequency of promotion activity, with categories and brands having more frequent promotions exhibiting lower sales increases when one or more of the brands price promotes.     

“One-deal-fits-all?” On Category Sales Promotion Effectiveness in Smaller versus Larger Supermarkets

Even within a store chain and format, supermarket outlets often exhibit substantial differences in selling surface. For chain managers, this raises the issue of correctly anticipating the promotion lift, and of profitably managing promotion activities, across these outlets. In this paper, we conceptualize why and how store size influences the category sales effectiveness of four promotional indicators (depth of the promotional discount, display support, feature support, and whether the promotion is quantity-based). We then estimate the net moderating effect on four product categories for 103 store outlets belonging to four chains. For each of the promotion instruments, we find the percentage sales increases to be lower in large stores. For instance, whereas a 10% point increase in feature activity enhances category sales by about 1.64% in a 700 m² store, this figure drops to only 1.03% in a 1300 m² store – a 59% reduction. This moderating effect is especially pronounced for discount depth, the relative sales lift from a typical price cut being about 78% lower in the larger-sized outlet. However, since large outlets also have larger base sales, the picture changes when we consider absolute sales effects. The net outcome is that deeper discounts or quantity-based promotions do not systematically generate larger or smaller absolute sales bumps in large stores, whereas for in-store displays and features, we obtain a clear positive (be it less than proportional) link between store size and absolute category sales lift. When it comes to margin implications, we show that large stores gain higher profit from price cuts than small outlets only as long as the retailer keeps part of the manufacturer discount to himself. Managers can use these insights to improve their promotional forecasts across outlets, as well as to tailor their mix of instruments to store selling surface.     

Does manufacturer advertising suppress or stimulate retail price promotions? Analytical model and empirical analysis

Does manufacturer advertising for a brand stimulate or suppress retail price promotions? This study addresses this controversial issue. The authors develop an analytical model that shows that the relationship between manufacturer advertising and retail price promotion depends on the role of advertising. If advertising differentiates brands and suppresses consumer response to retail promotion, then the relationship is negative. But, if advertising is informative enough to increase consumer response to retail promotions, then the relationship is positive. A follow-up empirical analysis shows a strong positive relationship between category advertising expenditure and size of retail price discount, and between advertising and discount frequency. The finding supports the informative role of advertising in the context of retail price promotions. The implications of these findings and directions for future research are discussed.     

Retail channel price discrimination

This paper examines price differentials of identical items across retail channels. Many consumer packaged goods are sold through both grocery and drug stores. Liquor is unique in that in much of the country there is a third retail channel of distribution, liquor stores. If consumers in each retail channel differ in their willingness to pay for certain items, then sellers can exploit those differences and charge different prices for the same items in each channel. We examine a unique data set of pooled cross sectional retail scanner data on wine to test whether sellers use retail channel to identify heterogeneous consumer market segments and engage in price discrimination. We begin by presenting a model of price discrimination by retail channel along with behavioural assumptions regarding shoppers in each channel. Next we examine sales by retail channel and find persistent price differentials for the same item across retail channel after controlling for sample selection bias and seasonality. Lastly, we estimate the price elasticity of demand correcting for endogeneity and find differences across channel consistent with the price differentials. The extent of price differential, however, differs significantly with respect to price point.     

Duration of price promotion and product profit: An in-depth study based on point-of-sale data

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.     

Estimating cannibalizing effects of sales promotions: The impact of price cuts and store type

To evaluate the financial impact of supermarket sales promotions, managers must estimate how much new demand comes from cannibalizing the base product compared with other sources. However, investigations into cannibalization are scant. Using vector autoregression analytical framework applied to three years of supermarket scanner data, and sales promotions for pound cake, we estimate cannibalization effects for two common price reductions (10% and 15%), across large, medium and small supermarkets. The sales bumps varied across supermarkets for each price cut while cannibalization effects were substantial only in large supermarkets, with moderate effects in medium stores and no effects in small supermarkets.     

Exploring the effect of retail sector and firm characteristics on retail price promotion strategy

This study examines why retail price promotion strategies vary across retail sectors and across firms within sectors. Using hierarchical linear modeling and a sample of 38 firms from 11 retail sectors, the authors investigate how two sector-level characteristics, related to product assortment perishability and heterogeneity, and three firm-level characteristics, related to retailer differentiation, number of stores, and average store size, influence price promotion decisions. The results indicate that assortment heterogeneity moderates the positive influence of perishability on price promotion activity; scale and scope also have significant effects. These results offer fresh insight into the ongoing debate surrounding stable versus promotional pricing, suggesting that the benefits of a particular strategy are driven largely by a complex interaction between sector-level characteristics as well as firm-level cost advantages.     

Statistical Inference Using Stochastic Switching Models for the Discrimination of Unobserved Display Promotion from POS Data

The execution of price and/or display promotion has a significant effect on the sales of a brand sold in a supermarket. Information on price and/or sales is available from POS data. However, unless an investigator collects information on the execution of display promotions from every retail store, such information is unavailable. This paper presents a method of identifying whether display promotion has been executed without having to visit individual stores. We treat the execution/non-execution of a display promotion as a state variable. An unknown stationary probability matrix is assumed to describe the probability of a transition between states. Each state is characterized by a different stationary time series model with unknown parameters. The objective of the analysis is to identify the model and to assign a probability model for each state at each time instant. Finally, we provide a high precision estimator of a past execution/non-execution of a display promotion based on the proposed model.     

Robustness of an Intermittent Program of Comparative Retail Food Price Information

This study compares the distribution of food-item market basket prices across stores and relative to a local newspaper retail food price report. Distributions of prices for market baskets comprised of national brands and cheapest alternative brands coincided closely with the intermittent retail food price report. This suggests that consumer organizations with limited resources can produce comparative food-store price reports that provide useful information to consumers.     

Consumer evaluations of different promotion types and price presentations: the moderating role of promotional benefit level

The effects of promotion type (i.e., price discounts and bonus packs) and price presentation (i.e., dollars and percentages) across promotional benefit levels were investigated in three experimental studies. The results suggest, for the products considered, that price discounts and bonus packs were valued similarly for both low and moderate promotional benefit levels, while price discounts were preferred when high promotional benefit levels were employed. Additionally, promotions presented in percentage terms were preferred when the benefit level was high. The implications of these results for retailers and manufacturers are that percentage price presentations should be used when large discounts are being offered. Furthermore, it appears that bonus packs are a viable alternative to price discounts when promotion levels are small or moderate since they have less of a deleterious effect on the brand.     

The influence of social capital on local retail patronage in an urban setting

Local retail stores are currently facing intense competition from both online retailers and large chain stores. An understanding of local retail store patronage (i.e., patronage of retail stores in one's own community) is essential to the survival and growth of local retailers. Drawing on Social Capital Theory, we theorize and show with store-level survey data the influence of social capital (community attachment and reciprocity) on local retail store patronage in a large urban setting. We find that the impact of social factors differs for residents within the community compared to those outside of the community. We also demonstrate the importance of social factors in comparison to non-social factors. These findings contribute to the literature by extending the impact of social capital on local retail store patronage beyond rural settings, providing insight into urban consumers' decision to patronize local retail stores, and highlighting the impact of community boundaries. These findings also generate practical recommendations for local merchants and stress the importance of building reciprocal relationships with local customers as well as varying communications across community boundaries.     

Distorted competition: Below-cost legislation, ‘marges arrière’ and prices in French retailing

Abstract

The aim of this article is to demonstrate that the French Galland Act, outlawing below-cost resale via new and more severe invoicing regulation, has reduced the intensity of price competition among retailers in relation to branded goods. Moreover, the reduced intensity of price competition in the retail industry has encouraged a lessening of competition among the manufacturers of major industrial brands. Together, these two effects have sown the seeds of a sustained increase in the price of major brands, accentuating retail competition based more on differentiation than on price. These sustained policies have favoured the development of retailer brands and of hard discount stores and finally encouraged new types of reactions from major retailers and leading manufacturers, such as new types of promotions circumventing the Galland Act and a more intense lobbying activity in order to reform it.     

关于零售市场中的连锁店和单一店的研究

商业零售组织根据组织方式不同可以分为连锁店和单一店。不同组织结构的公司围绕市场规模的扩张有不同的模式行为。连锁店的规模和城市规模是成比例的,连锁店的规模随着市场规模的扩大而扩大,单一店的规模不随市场规模而变化,只是数量随城市规模增大而增加。     

An empirically derived taxonomy of retailer pricing and promotion strategies

Most research categorizes grocery retailers as following either an Every Day Low pricing (EDLP) or a High Low (Hi-Lo) pricing strategy at a store or chain level, whereas this paper studies retailer pricing and promotions at a brand-store level. It empirically examines 1,364 brand-store combinations from 17 chains, 212 stores and six categories of consumer package goods in five U.S. markets. Retailer pricing and promotion strategies are found to be based on combinations of four underlying dimensions: relative price, price variation, deal intensity and deal support. At the brand-store level, retailers practice five pricing strategies, labeled Exclusive, Moderately Promotional, Hi-Lo, EDLP, and Aggressive pricing. Surprisingly, the most prevalent pricing strategy is not Hi-Lo pricing strategy as is widely believed. It is one characterized by average relative brand price, low price variation, medium deal intensity, and medium deal support. The findings provide some initial benchmarks and suggest that retailers should closely monitor their competitors’ price decisions at the brand level.     

A Multiple-discrete/Continuous Model of Price Promotion

Understanding the effect of temporary price reductions, or price promotions, on sales of consumer packaged goods is an area of ongoing interest, both in academia and in practice. Price promotions, however, are becoming an increasingly important method of managing consumer demand for fresh produce items. Modeling the impact of price promotions must take into account the differentiated nature of fresh produce and the fact that consumers tend to purchase multiple items of only a few of the products available to them. Neither a continuous nor a discrete model of demand is appropriate. In this paper, we apply a multiple-discrete/continuous model of fresh produce demand to study the impact of price promotion on retail apple sales. Our findings show that the brand switching/category incidence effect of promotion is closer to 65/35 than the more usual 80/20 rule (80 percent of the effect is brand switching and 20 percent purchase incidence) when the nature of the decision is appropriately taken into consideration.     

Assessing the Impact of Price Promotions on Consumer Response to Online Stockouts

The recent growth of e‐commerce technologies has disrupted the traditional retail environment, leading to more consumers shopping online. While the manner in which consumers shop is changing rapidly, our understanding of how changing consumer behaviors affect retail supply chain management is lacking. In particular, our understanding of how consumers react to stockouts in an online shopping environment remains unclear. Making the challenge even more difficult is the fact that price promotions are heavily used to attract consumers in an online retail environment where consumer switching costs are low. This research develops a theoretical framework, based on expectation‐disconfirmation theory, to explain the effect of price promotions on consumer expectations of product availability and their reactions to stockouts in an online retail environment. Surprisingly, our findings suggest that consumers are actually less dissatisfied with a stockout of a price promoted item than a nonprice promoted product and are less likely to switch to another retailer's website. These findings may suggest that price promotions actually create a type of switching cost in the online retail environment, leading to interesting implications for researchers and supply chain managers.