Measuring the impact of product and promotion-related factors on product category price elasticities

Abstract

Our study relates product category price elasticities to factors associated with the product being promoted and the product's promotional history. Examining product category elasticities is relevant because category management techniques are playing an increasingly important role in the promotional and merchandising activities of retailers and packaged goods manufacturers. We developed and tested a cross-section model using 52 weeks of scanner data and company records from a large supermarket chain. We hypothesized that brand market share, shelf space allocation, and product type (national brand or store brand) would have a positive impact on product category elasticities, whereas brand price, frequency of promotion, frequency of product display, and the bulkiness of the brand would have a negative effect on product category price elasticities. We found product-specific factors, such as brand market share and price, had a significant impact on category elasticity, whereas most of the promotion-related factors, including the frequency and magnitude of price specials, did not affect category elasticities. Our results offer retailers and manufacturers the opportunity to influence category sales through recognition of brand-level differences.