Price Cuts Research Articles

The impacts of competitive entry on pricing in the Finnish retail grocery market

PurposeThe purpose of this paper is to explore the impacts that a new retailer entering a previously stable market has on the domestic retailers' pricing behaviour. The paper describes and analyses the context of the entry of the hard discounter chain Lidl into the Finnish market.Design/methodology/approachTo illustrate the effects of competitive entry on pricing behaviour of competitors, prices of 20 grocery items were collected from three different chains and three market areas in three different points of time. Based on these data the pricing initiatives of the entrant and the reactions of the domestic competitors are described and analysed in terms of four dimensions: competition, geographical, assortment, and time.FindingsThe analysis reveals that the domestic retailers reacted to the intensifying price competition by engaging in selective price changes. Both price cuts and price increases were detected.Originality/valueThe paper provides empirical insights about the impacts of intensifying competition on pricing.

Consumer Learning, Switching Costs, and Heterogeneity: A Structural Examination

I formulate an econometric model of consumer learning and experimentation about new products in markets for packaged goods that nests alternative sources of dynamics. The model is estimated on household level scanner data of laundry detergent purchases, and the results suggest that consumers have very similar expectations of their match value with new products before consumption experience with the good, but once consumers have learned their true match values they are very heterogeneous. I demonstrate that resolving consumer uncertainty about the new products increases market shares by 24 to 58%. The estimation results also suggest significant switching costs: removing switching costs increases new product market shares by 12 to 23%. Using counterfactual computations derived from the estimates of the structural demand model, I demonstrate that the presence of switching costs with learning changes the implications of the standard empirical learning model: the intermediate run impact of an introductory price cut on a new product's market share is significantly greater when the only source of dynamics is switching costs as opposed to when both learning and switching costs are present, which suggests that firms should combine price cuts with introductory advertising or free samples to increase their impact. Because my model includes two different types of dynamics, I am able to assess the impact of ignoring learning or switching costs on the model's imputed long run price elasticities by re-estimating the model assuming that one of these dynamics is not present. I find that ignoring learning will i) lead to underestimates of the own price elasticities of new products by 30%, ii) will underestimate the cross-price elasticities between new and established products by up to 90%, iii) will overestimate the cross-price elasticities of established products by up to 15%. Ignoring switching costs will lead to underestimates of own price elasticities of up to 60%, and underestimates of cross-price elasticities of up to 90%.

A Dynamic Model of Brand Choice When Price and Advertising Signal Product Quality

In this paper, we develop a structural model of household behavior in an environment where there is uncertainty about brand attributes, and both prices and advertising signal brand quality. Four quality signaling mechanisms are at work in the model: 1) price signals quality, 2) advertising frequency signals quality, 3) advertising content provides direct (but noisy) information about quality, and 4) use experience provides direct (but noisy) information about quality. We estimate our proposed model using scanner panel data on ketchup. If price is important as a signal of brand quality, then frequent price promotion may have the unintended consequence of reducing brand equity. We use our estimated model to measure the importance of such effects. Our results imply that price is an important quality signaling mechanism, and that frequent price cuts can have significant adverse effects on brand equity. The role of advertising frequency in signaling quality is also significant, but it is less quantitatively important than price.

Prices and Economic Change in Medieval Sweden

The article explores relative price changes in medieval Sweden, with a focus on grain, beer, salt, oxen, butter, wax and iron. Supplementary data are provided on copper and hops. Most of these goods declined substantially in price relative to grain. The magnitude of the relative price shifts reflects technological and organisational change. Price cuts tended to be larger for goods that possessed a high knowledge content, such as iron, copper, and beer, or were involved in a more efficiently organised international trade, such as salt. This parallels the notion that north-western Europe, at least from the sixteenth century, developed a distinctive pattern of relative prices, with low prices of industrial goods and high prices of food. It is striking that Sweden, a peripheral economy of medieval Europe, exhibits these traits even before the sixteenth century. The great expansion of the European economy of the early modern period appears as a continuation of the innovations of the late medieval era.

Japan's Healthcare System and Pharmaceutical Industry

Japanese people are enjoying longer and healthy lives at relatively low cost, thanks to well-balanced nutrition, low infant mortality and effective TB drugs. The healthcare system of the country also has made a significant contribution to such good performance. The system is divided into health insurance programs and a special healthcare system for seniors (SHSS), to which Japan's government has been paying money despite having a tremendous financial deficit. The government has tried to slash its financial burden of the healthcare system as much as possible for a better financial condition. Meanwhile, the Japanese pharmaceutical industry has played an important role in the development of the healthcare system under the situation of government having carried out a series of National Health Insurance (NHI) drug price cuts in order to save healthcare costs in recent years. The industry is categorised into three groups such as big players with presence in the US and Europe, other brand drug companies with no presence in these areas and generic drug companies. Price cut pressure from the government will force the big players to intensify their overseas activities and the other brand drug companies to do everything for their survival. On the other hand, generic drug companies will keep a better position in the market because the government has realised that promoting the use of generic drugs is effective for cost saving and changed to the policy favourable to the generic industry.

Across-the-board price cuts of 5% have been ordered by Italy's pharmaceutical agency for all products paid for by the country's NHS,

Across-the-board price cuts of 5% have been ordered by Italy's pharmaceutical agency for all products paid for by the country's NHS,

Across-the-board price cuts of 5% have been ordered by Italy's pharmaceutical agency for all products paid for by the country's NHS,

Across-the-board price cuts of 5% have been ordered by Italy's pharmaceutical agency for all products paid for by the country's NHS,

New price cuts hit Chinese market

New price cuts hit Chinese market

The Anatomy of a Price Cut: Discovering Organizational Sources of the Costs of Price Adjustment

The fact that organizations find it hard to change in response to shocks in the environment is a crucial feature of the economy. Yet we know little about why it is so difficult for organizations to adjust, and where these limitations come from. In an effort to discover some of these reasons we ground ourselves in the context of price adjustment, and present a qualitative analysis of an intensive ethnographic field study of the pricing practices at a one-billion dollar Midwestern industrial manufacturing firm and its customers. We go into depth on a specific episode, a price cut, which most vividly exemplifies the themes that emerged from our data. In the specific situation, market forces clearly dictate that the firm should cut prices, and everyone in the firm agrees with this assessment, suggesting a fairly straightforward price adjustment decision. Yet when we look deeper, and dissect how the firm implemented the price cut, we uncover a rich tapestry of frictions hidden within the organization. At their core, these frictions relate to how managers, in the context of an organization, attempt to apply the fundamental elements of economic theory. Essentially they face a series of constraints that make sense in the context of an organization trying to make these adjustments, but constraints that are rarely articulated or incorporated into economic understanding of price adjustment. We discover that the largest barriers to price adjustment are related to disputes arising from collisions between partial models used by different organizational participants as they confront fundamental economic issues. Often, these issues have not been settled and exist in a tenuous truce within the organization - and adjustment requires the organization to deal with them in order to react to these changes.

Pharma growth in Slovenia, Russia

Pharma growth in Slovenia, Russia

Taiwan's latest reimbursement price cut will see around $NT14 billion* shaved off national health insurance (NHI) spending on prescription drugs,

Taiwan's latest reimbursement price cut will see around $NT14 billion* shaved off national health insurance (NHI) spending on prescription drugs,

Growth predicted in DM industry

Growth predicted in DM industry

Drug price cuts in China, India

Drug price cuts in China, India

How do price-based sales affect market basket prices? Evidence for fresh food products in German grocery stores

Abstract Sales of fresh food products are a predominant feature in retail pricing around the world. Price-based sales offer significant price cuts in products for a limited time and are the most popular form of promotional sales in Europe. From a consumer perspective, it is of interest to determine whether such price-based sales are reflected in the price of typical market baskets, or whether they are financed by price increases for other products as suggested by the loss- leader hypothesis. Competitive market theories suggest that a sale signals a reduction in market basket price. Within this setting, this article empirically examines the implications of sales for the market basket prices. Results are drawn from analysis of a unique data set for fresh food items in German grocery stores over the period from 1995 to 2000. Results indicate that in the short-run the market basket price for fresh food decreases with the number of fresh food product sales, consistent with competitive pricing. However, over ti...

Generic drug price cuts in Germany

Generic drug price cuts in Germany

Tenofovir disoproxil fumarate price cut in Brazil

Tenofovir disoproxil fumarate price cut in Brazil

An Integrated Model of Alternative Mechanisms of In-Store Display and Feature Advertising on Brand Choice

Although many studies have documented that in-store displays and feature advertising can significantly increase brand choice probabilities, the mechanism through which they affect the choice decision process is not well understood. The marketing literature has suggested twoprominent decision mechanisms through which their effects may take place, which I call: the price cut proxy effect and the consideration set formation effect. The primary objective of this study is to jointly examine these two decision mechanisms suggested in the literature using scanner panel data of actual purchase behavior. I construct a brand choice model based on the behavioral premises of both effects. The proposed model allows consumers to use a combination of various decision processes with different probabilities, and accommodates the correlation in utilizing different decision mechanisms of display and feature ad. Results of the empirical analysis reveal distinct consumer segments with regard to their tendenc ies to use displays and/or feature ads as price cut proxies or for forming consideration sets, and the pattern is consistent with consumer characteristics in each segment, such as degree of state dependence and price sensitivity. Findings from this study shed light on some mixed patterns of promotion interaction effects documented in the literature, and also have interesting implications for promotion decisions.

A note about price competitiveness impact on conventional theory and overall pay-off of intraindustry trade

Contrary to much of the mainstream literature on trade in monopolistic competition setting, we point out the importance of departure from CES dogma and consequently revealed, if thus far neglected, price competitiveness effect, as a supplement to the classical Dixit-Stiglitz "love of variety". Quite apart from initial price and cost cuts due to greater competition as well as increased consumer welfare as a corollary of more substitutes being available for consumption, there is additional room for price-cost competitiveness boost in terms of scale economies grasped by global market expansion of successful varieties (firms). Analytical framework developed in the paper has led us to conclude that intra industry trade does lower prices and enable greater variety, in as much as it raises efficiency by melting the gap between the zero-profit equilibrium utility and the constrained optimum utility. However, unlike some most recent contributions, our supposition of further downward flexibility of marginal costs prevents us from unambiguously claiming that national firms in the open economy must be fewer as opposed to the autarky case. Put differently, profit margins need not necessarily be falling pro rata (or at all, for that matter) with world prices. That might be one plausible explanation for just why in spite of evident procompetitive effects within the Ell-automobile industry, its price-cost wedges did notfall, but have rather related still. <br><br><font color="red"><b> This article has been retracted. Link to the retraction <u><a href="http://dx.doi.org/10.2298/EKA0670190U">10.2298/EKA0670190U</a></u></b></font>

The ‘nag factor’ and children’s product categories

When products are designed for the youth market, should marketers focus on parents? Or does it make more sense to target children directly? In the latter case, marketers in the USA often rely on the ‘nag factor’, reaching children so they will influence their parents’ purchase decisions. Such influence may be observed as an apparent increase in varietyseeking behaviour. For product categories aimed at children, this study observes no difference in response to promotional activities (temporary price cuts, in-store displays and feature advertisements) between households with children and those without. However, households with children show greater sensitivity to price and greater variety seeking in the carbonated beverage and children’s breakfast cereal categories. Further, the present results are consistent with recent public policy research findings, in that media advertising may be driving children’s requests for brands in these categories. Because advertising messages cannot be completely prevented from reaching children, if one goal of American public policy is to promote healthy eating and reduce child obesity, it may be more effective to improve education and/or implement taxes that activate a price response in children’s food categories.

Evaluating temporary retail price discounts using semiparametric regression

PurposeTo analyze the impact of temporary retail price discount on a consumer goods product category using semiparametric regression and considering different promotional price discount characteristics as well as brand characteristics.Design/methodology/approachA semiparametric regression model using Support Vector Machines, which aim to evaluate retailers' decisions about temporary price discounts, has been developed. The model is derived from the analysis of historical sales data, which provide precise evaluation of previous temporary price discounts periods. The model is also consistent with ample empirical evidence showing that historical retail sales data can be used to evaluate the impact of past promotions.FindingsProvides an estimation of the shape of the deal effect curve, indicating which temporary price discounts are more effective to increase sales and showing the existence of different threshold and saturation levels. Confirms that promotional price discounts accelerate sales especially during week ends. Evidences that promoting high‐priced (high‐quality) brands has a stronger impact on sales of low‐priced (low‐quality) brands than the reverse and that cross‐price effects are stronger on the sales of brands with similar prices. Suggests the convenience of the use of the proposed semiparametric methodology to the study of the promotional effects considered.Research limitations/implicationsIt is not possible to generalize the modelled shapes of the deal effect curves. There is no information available on feature advertising nor displays. It is important to determine the generalizability of these results to the study of additional promotional effects. It would also be interesting to assume that the retailer's deal policy is exogenous.Originality/valueProvides a relevant tool to assess the set of price promotional periods by the grocery retailer. With a more precise and accurate knowledge about the performance of past temporary price cuts, retailers can implement more effective promotional periods.