Multiproduct Retailers Research Articles

Retailer, Manufacturers, and Individual Consumers: Modeling the Supply Side in the Ketchup Marketplace

The authors construct a model of the local ketchup market in a Texas city that accounts for household, manufacturer, and retailer decisions. That is, the model develops both demand and supply sides of the market. The authors model the demand side through a latent utility framework that allows for a no-purchase option. Accounting for both sides of the market enables the authors to check for any endogeneity problems on the demand side. They model the supply side through the profit-maximizing decisions of the manufacturers and a multiproduct retailer. Accounting for both the retailer and the manufacturer decisions enables the authors to evaluate the degree of manufacturer competition, retailer–manufacturer interactions, and retailer product-category pricing. Given the model assumptions and the market being studied, the authors find that not accounting for demand endogeneity can create bias in the estimation, the retailer seems to price below the static profit-maximizing prices for two of the three brands, and the inferred marginal wholesale prices are below the equilibrium uniform wholesale prices for two brands. The authors discuss the results with regard to channel bargaining, quantity discounts, and retailer category pricing.

Multiproduct retailers and the sale phenomenon

Two common features of retailing are that each retailer sells many different products, and that pricing strategies differ across products. This paper extends previous work on single-product retailer competition to a multiproduct setting. Specifically, we derive equilibrium pricing strategies for perishable and nonperishable goods. We find the intuition used to explain pricing dynamics for nonperishable items in single-product models generalizes to the multiproduct setting. Moreover, because goods are substitute means of attracting customers within the multiproduct setting, price changes for the nonperishable good will affect the perishable good price. In addition, the multiproduct setting generates a rich set of implications, some of which we empirically examine. For example, we find that, consistent with the theory, perishable and nonperishable price changes are negatively correlated. This and other evidence suggests that pricing dynamics are related in predictable ways to product characteristics, such as consumers' storage costs. [JEL Numbers: L81, L11, D21]. © 2001 John Wiley & Sons, Inc.

Menu Costs, Posted Prices, and Multiproduct Retailers

We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.

Price Promotions and Trade Deals with Multiproduct Retailers

In this paper we study retail price promotions and manufacturer trade deals in markets with multiproduct retailers. We find that in situations where retailers carry more than one competing brand, the promotions across brands can be positively or negatively correlated depending on the structure of the market: the relative sizes of the various market segments (in terms of loyalty to manufacturer, retailer, or the pair manufacturer-retailer). We show that sometimes retailers offer the same discount on different products, but at other times they offer a smaller discount on a brand supported by a bigger trade deal. We also present results on the effects of changes in the sizes of the different market segments on the depth of price promotions and trade deals and on pass through.

Price adjustment at multiproduct retailers

We empirically study the price adjustment process at multiproduct retail stores. We use a unique store level data set for five large supermarket and one drugstore chains in the USA, to document the exact process required to change prices. Our data set allows us to study this process in great detail, describing the exact procedure, stages, and steps undertaken during the price change process. We also discuss various aspects of the microeconomic environment in which the price adjustment decisions are made, factors affecting the price adjustment decisions, and firm-level implications of price adjustment decisions. Specifically, we examine the effects of the complexity of the price change process on the stores' pricing strategy. We also study how the steps involved in the price change process, combined with the laws governing the retail price setting and adjustment, along with the competitive market structure of the retail grocery industry, influence the frequency of price changes. We also examine how the mistakes that occur in the price change process influence the actions taken by these multiproduct retailers. In particular, we study how these mistakes can make the stores vulnerable to civil law suits and penalties, and also damage their reputation. We also show how the mistakes can lead to stockouts or unwanted inventory accumulations. Finally, we discuss how retail stores try to minimize these negative effects of the price change mistakes. © 1998 John Wiley & Sons, Ltd.

Price adjustment at multiproduct retailers

We empirically study the price adjustment process at multiproduct retail stores. We use a unique store level data set for five large supermarket and one drugstore chains in the USA, to document the exact process required to change prices. Our data set allows us to study this process in great detail, describing the exact procedure, stages, and steps undertaken during the price change process. We also discuss various aspects of the microeconomic environment in which the price adjustment decisions are made, factors affecting the price adjustment decisions, and firm-level implications of price adjustment decisions. Specifically, we examine the effects of the complexity of the price change process on the stores' pricing strategy. We also study how the steps involved in the price change process, combined with the laws governing the retail price setting and adjustment, along with the competitive market structure of the retail grocery industry, influence the frequency of price changes. We also examine how the mistakes that occur in the price change process influence the actions taken by these multiproduct retailers. In particular, we study how these mistakes can make the stores vulnerable to civil law suits and penalties, and also damage their reputation. We also show how the mistakes can lead to stockouts or unwanted inventory accumulations. Finally, we discuss how retail stores try to minimize these negative effects of the price change mistakes. © 1998 John Wiley & Sons, Ltd.

A data‐driven modeling approach to product level decision support

The marriage of new scanner‐type data sources and new computing and analysis methods is allowing a new approach to the development and use of models for decision support and product line management. Data‐driven modeling describes a process of model‐building wherein models are created that fit the dynamics of the data rather than assuming a priori relationships among brands and their marketing mix elements. Based on a combination of time‐series and econometric modeling methods, these models can significantly improve a modeler’s ability to capture marketplace structure and dynamics. Although more complex than their predecessors, the capabilities of these new data‐driven decision support models make them potentially very powerful tools, improving intuition and managerial understanding while suggesting improved decision alternatives. Develops such a model using detailed multiproduct retail data and demonstrates its capabilities.

Multiproduct Firms' Pricing Behaviour in the Italian Grocery Trade

This paper investigates the determinants of price dispersion between different goods in grocery retailing, as the result of pricing decisions of multiproduct retailers. Demand parameters are generated using the LES system. These are then used to test theoretical predictions about the nature of supermarkets' pricing and consumers' shopping behaviour using disaggregated data from the Italian grocery trade. The empirical results concerning the supply function provide evidence for the existence, in all types of retail organisation, of a monopolistic form of price discrimination. The results are consistent with discrimination due to the exploitation of customers' switching costs.

An empirical investigation of the advertising spending decisions of a multiproduct retailer

In a multiproduct retailing context, an approach for testing marketing mix variables is presented that should be of interest to retailers and researchers alike. Traditional model building for decision evaluation purposes suffers from a serious drawback in that the underlying model is assumed to be known. The present approach incorporates the search for the “true” model as an intrinsic part of the method. Based on up to date modeling perspectives, the approach can be divided into three steps: (1)the use of multiple time series analysis to assist in model specification; (2) the choice of functional form, model estimation and testing; and (3) the use of statistical and simulation methods to test decision making hypotheses. The approach is applied to three years of a western wear retailer's weekly sales and advertising data; multiple time series analysis is used to specify a simultaneous equation model that captures demand interdependences. After subjecting the model to several stability tests, it is then used as a basis for testing several interesting hypotheses concerning the retailer 's advertising decision making behavior. The key insight for multiproduct retailers is that advertising budget allocation decisions across products and media are probably more important than decisions affecting the level of the total budget since the former have a greater impact on profit contribution.