An Empirical Analysis of the Impact of Promotional Discounts on Store Performance |
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| Institution: | 1. Walton College of Business, University of Arkansas, Fayetteville, AR 72701, United States;2. University of Texas at Dallas, 3.707, 2601 N Floyd Road, Richardson, TX 75083, United States;3. University of Connecticut School of Business, Marketing Department, 2100 Hillside Road, Unit 1041, Storrs, CT 06269, United States;4. School of Management, 215 E Jacobs Center, Buffalo, NY 14260, United States;1. College of Business, University of Alabama in Huntsville, Huntsville, AL 35899, United States;2. Questrom School of Business, Boston University, Boston, MA 02215, United States;3. Questrom School of Business, Boston University, Boston, MA 02215, United States;1. Univ Lyon, GATE Lyon Saint-Etienne UMR CNRS 5824, F-42023 Saint-Etienne, France;2. Research Institute of Economics and Management, Southwest University of Finance and Economics, Chengdu, Sichuan 610074, China;3. Escuela Politécnica Nacional, Quito, Ecuador & GATE Lyon Saint-Etienne, UMR CNRS 5824, France;1. Graduate School of Business, Nazarbayev University, Astana 010000, Kazakhstan;2. Olin Business School, Washington University in St. Louis, St. Louis, MO 63130, USA;1. Iowa State University, College of Business, Department of Marketing, Ames, IA 50011-1350, United States;2. University of Georgia, Terry College of Business, Department of Management Information Systems, Athens, GA 30602, United States;1. Department of Marketing, College of Business, Bowling Green State University, Bowling Green, OH 43403, United States;2. Coleman Chair in Marketing, Mays Business School, Texas A&M University, College Station, TX 77843, United States |
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| Abstract: | The received wisdom, reflected in popular marketing textbooks, is that featuring deeply discounted items will generate additional store traffic for retailers that in turn will lead to increased sales and profits. However, there is surprisingly little systematic evidence about the impact of these deep discounts on aggregate store traffic, sales, and profits. In this paper, we study the effects of promotional discounts and their characteristics on various store performance metrics employing a store level dataset pooled over 55 weeks and 24 stores. Many findings of our study lend credence to the continued popularity of such promotions by retailers. We find that feature promotions build store traffic, especially when the categories being featured are high penetration, high frequency. Also, promotions of branded items are found to be more effective than promotions of unbranded items. Discounting on more items in a category leads to lower store margins suggesting that the cost of discounting a large proportion of items in a category may not be justified by the profits generated by the sale. Using the coefficients from our model estimates, various counterfactuals provide insights into strategic change in level of discounts across categories. We discuss several implications of our findings for retailers. |
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| Keywords: | Promotional discounts Store performance Loss leader Store flyers |
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