Effects Of Price Promotions Research Articles

The Effect of Price Promotions on Variability in Product Category Sales

Our objective in this research is to relate variability in product category sales to promotional activity in the product category, and other category specific characteristics. The findings may be relevant from retailers' perspective as retailers' revenues are more closely related to the sales of the product category as opposed to the sales of any particular brand. We analyze data on about 2,000 brands from 25 different SAMI categories, obtained with the cooperation of a major grocery chain. Our data suggest that an increase in the magnitude of discounts increases the variability in category sales but an increase in the frequency of discounts has an opposite effect. Furthermore, categories which are bulky, or categories where the degree of competitiveness is high, exhibit lower variability in sales.

Effects of Price Promotions on Variety-Seeking and Reinforcement Behavior

A stochastic model is proposed to examine how changes in frequency of price discounts affect brand choice decisions of consumers who exhibit variety-seeking and reinforcement behavior. It is shown that the effect on choice depends on whether the brand offering discounts is a major or minor brand in the product category. This model extends the existing literature on stochastic models of variety-seeking behavior by explicitly incorporating switching due to promotions along with intrinsic switching due to variety-seeking. The model yields testable hypotheses which are supported in a laboratory experiment and on analyses of the IRI cracker data.

A Structural Equations Analysis of the Impact of Price Promotions on Store Performance

Guided by past research, conventional wisdom in the retailing area, and microeconomic theory, the authors develop a series of hypotheses about the effects of loss leaders, in-store price specials, and double coupon promotions on overall store sales, profit, and traffic. The resulting system of structural relationships is tested and cross-validated with data from two large supermarkets. The findings indicate that (1) though most of the loss leader promotions had no effect on store profit, those loss leaders that did affect profit did so through their effect on store traffic rather than through their effect on sales of the promoted items, (2) double coupon promotions affected profit by increasing sales of products purchased with a coupon rather than by increasing store traffic, and (3) in-store price specials appear to have had no effect on store profit, sales, or traffic. The results of the study also emphasize the importance of building store traffic to increase retailer profit and of examining the effects of price promotions within the context of a system of relevant equations.

Habit Formation and Dynamic Demand Functions

Most economists would agree that past consumption patterns are an important determinant of present consumption patterns, and that one ought to distinguish between long-run and short-run demand functions. But although the distinction between long-run and short-run behavior is traditional in the theory of the firm, it is seldom made in the theory of consumer behavior. If we regard demand theory as a theory of how a given amount of money (expenditure, called income) is allocated among goods, then-in a world without consumer durables-there are three reasons why longand shortrun demand functions might differ. (i) The consumer may have contractually fixed commitments which prevent him from adjusting some portion of his consumption (for example, housing) in response to changes in prices or income. When these fixed commitments lapse, he is able to adjust to his long-run equilibrium. (ii) The consumer may be ignorant of consumption possibilities or of his own tastes outside the range of his past consumption experience. In this case his adjustment to a new price-income situation will involve a time-consuming learning process. (iii) Finally, goods may be "habit forming" so that an individual's current preferences depend on his past consumption patterns. In this case a change in prices or income will cause a change-in consumption which will induce a change in tastes, which will cause a further change in consumption. In this paper I formulate a model of consumer behavior based on habit formation, beginning with a specific class of demand functions derived from the "modified Bergson family" of utility functions. The properties of these utility functions and the corresponding demand functions are briefly summarized in Section 1. I then postulate that the parameters