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An Empirical Analysis of Determinants of Retailer Pricing Strategy

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Author Info

  • Venkatesh Shankar

    ()
    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

  • Ruth N. Bolton

    ()
    (Owen Graduate School of Management, Vanderbilt University, Nashville, Tennessee 37203)

Abstract

This paper empirically investigates the determinants of retailers' pricing decisions. It finds that competitor factors explain the most variance in retailer pricing strategy. Only in the cases of price-promotion coordination and relative brand price do category and chain factors explain much variance in retailer pricing. These findings are derived from a simultaneous equation model of how underlying dimensions of retailers' pricing strategies are influenced by variables representing the market, chain, store, category, brand, customer, and competition. The optical scanner data base describes 1,364 brand-store combinations from six categories of consumer packaged goods in five U.S. markets over a two-year time period. Our study classifies retailers' pricing strategies based on four underlying dimensions: price consistency, price-promotion intensity, price-promotion coordination, and relative brand price. These four pricing dimensions are statistically related to: (1) competitor price and deal frequency (competitor factors), (2) storability and necessity (category factors), (3) chain positioning and size (chain factors), (4) store size and assortment (store factors), (5) brand preference and advertising (brand factors), and (6) own-price and deal elasticities (customer factors). These findings are useful to retailers profiling alternative pricing strategies, and to manufacturers customizing the levels of marketing support spending for different retailers.

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File URL: http://dx.doi.org/10.1287/mksc.1030.0034
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Bibliographic Info

Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 23 (2004)
Issue (Month): 1 (May)
Pages: 28-49

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Handle: RePEc:inm:ormksc:v:23:y:2004:i:1:p:28-49

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Related research

Keywords: retailing; pricing; promotion; competitive strategy; econometric analysis;

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Citations

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Cited by:
  1. John Galbraith & Greg Tkacz, 2009. "A Note on Monitoring Daily Economic Activity Via Electronic Transaction Data," CIRANO Working Papers 2009s-23, CIRANO.
  2. John Galbraith & Greg Tkacz, 2008. "Electronic Transactions As High-Frequency Indicators Of Economics Activity," Departmental Working Papers 2008-04, McGill University, Department of Economics.
  3. Draganska, Michaela & Seim, Katja & Mazzeo, Michael, 2007. "Beyond Plain Vanilla: Modeling Joint Product Assortment and Pricing Decisions," Research Papers 1982, Stanford University, Graduate School of Business.
  4. Geoffrey Pofahl & Oral Capps & H. Alan Love, 2006. "Retail Zone Pricing and Simulated Price Effects of Upstream Mergers," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 195-215.
  5. Haans, A.J. & Gijsbrechts, E., 2011. "One-deal-fits-all?: On category sales promotion effectiveness in smaller versus larger supermarkets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4643292, Tilburg University.
  6. Kaltcheva, Velitchka D. & Winsor, Robert D. & Patino, Anthony & Shapiro, Stewart, 2013. "Impact of promotions on shopper price comparisons," Journal of Business Research, Elsevier, vol. 66(7), pages 809-815.
  7. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 380, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. Dobson, Paul W. & Waterson, Michael, 2008. "Chain-Store Competition: Customized vs. Uniform Pricing," The Warwick Economics Research Paper Series (TWERPS) 840, University of Warwick, Department of Economics.
  9. Karray, Salma & Martín-Herrán, Guiomar, 2009. "A dynamic model for advertising and pricing competition between national and store brands," European Journal of Operational Research, Elsevier, vol. 193(2), pages 451-467, March.
  10. Sloot, L.M. & Verhoef, P.C., 2004. "Understanding the Impact of Brand Delistings on Assortment Evaluations and Store Switching and Complaining Intentions," ERIM Report Series Research in Management ERS-2004-114-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  11. Cron, William L. & Gilly, Mary C. & Graham, John L. & Slocum Jr., John W., 2009. "Gender differences in the pricing of professional services: Implications for income and customer relationships," Organizational Behavior and Human Decision Processes, Elsevier, vol. 109(1), pages 93-105, May.
  12. Holm, Thore & Steinhagen, Carsten & Loy, Jens-Peter, 2010. "Preistransmission Für Konsummilch Und Butter In Den Verschiedenen Distributionskanälen Des Lebensmiteleinzelhandels," 50st Annual Conference, Braunschweig, Germany, September 29-October 1, 2010 93954, German Association of Agricultural Economists (GEWISOLA).
  13. John Galbraith & Greg Tkacz, 2011. "Analyzing Economic Effects of Extreme Events using Debit and Payments System Data," CIRANO Working Papers 2011s-70, CIRANO.
  14. Widenhorn, Andreas & Salhofer, Klaus, 2012. "Price sensitivity within and across retail formats," Congress Papers 124108, Italian Association of Agricultural and Applied Economics (AIEAA).
  15. Draganska, Michaela & Klapper, Daniel & Villas-Boas, Sofia B., 2007. "Determinants of Margins in the Distribution Channel: An Empirical Investigation," Research Papers 1959, Stanford University, Graduate School of Business.
  16. Draganska, Michaela & Klapper, Daniel, 2006. "Retail Environment and Manufacturer Competitive Intensity," Research Papers 1953, Stanford University, Graduate School of Business.

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