Tradeoff between Frequency and Depth of Price Promotions: Implications for High- and Low-Priced Brands

Abstract

Academic researchers and marketing managers are interested in investigating two important issues in the consumer goods market. One is the effectiveness of price promotions and the other is the emerging competition between brands belonging to different price/quality tiers (e.g., national brands vs. store private-label brands). The author proposes a conceptual framework to examine the trade-off between frequency and depth of price cuts for high- and low-priced brands, and applies the framework in a numerical simulation. The findings are that high-priced brands benefit from infrequent large price cuts, whereas low-priced brands benefit more from frequent small price cuts. Implications for retailers and manufacturers are discussed.