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Flanking in a Price War

Author

Listed:
  • Roger J. Calantone

    (Department of Marketing, College of Business and Economics, University of Kentucky, Lexington, Kentucky 40506)

  • Cornelia Droge

    (Department of Marketing and Transportation, Graduate School of Business Administration, Michigan State University, 324 Eppley Center, East Lansing, Michigan 48824-1121)

  • David S. Litvack

    (Faculté D'Administration, University of Ottawa, 275 Nicholas, Ottawa, Ontario, Canada K1N 6N5)

  • C. Anthony di Benedetto

    (Department of Marketing, College of Business and Economics, University of Kentucky, Lexington, Kentucky 40506)

Abstract

This study tested the notion that stock-up grocery goods would have a different pattern of price sensitivity than nonstock-up goods. We used covariance design within a Bayesian decision framework to select the optimum price treatment strategy as well as the dollar risk associated with this strategy. The Bayesian decision framework also provided an optimal stopping rule for the experiment. The test results were successfully employed in a real-life retail grocery setting when an anticipated price war occurred. A small grocery chain, rather than responding in kind to competitive price cuts, implemented a precise, profit-preserving counterattack. As a result, the chain increased market share substantially, at the cost of only 1.2 percent of its gross margin, during the price war.

Suggested Citation

  • Roger J. Calantone & Cornelia Droge & David S. Litvack & C. Anthony di Benedetto, 1989. "Flanking in a Price War," Interfaces, INFORMS, vol. 19(2), pages 1-12, April.
    • Handle: RePEc:inm:orinte:v:19:y:1989:i:2:p:1-12
    DOI: 10.1287/inte.19.2.1
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    Citations

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    Cited by:

    1. Dutta, Shantanu & Bergen, Mark & Levy, Daniel, 2002. "Price flexibility in channels of distribution: Evidence from scanner data," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1845-1900, September.
    2. Levy, Daniel & Bergen, Mark & Dutta, Shantanu & Venable, Robert, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 112(3), pages 791-824.
    3. Levy, Daniel & Dutta, Shantanu & Bergen, Mark & Venable, Robert, 1998. "Price Adjustment at Multiproduct Retailers," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(2), pages 81-120.

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    Keywords

    marketing: pricing; industries: retail;

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