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Long-Run Effects of Promotion Depth on New Versus Established Customers: Three Field Studies

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  • Eric T. Anderson

    ()
    (Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, Illinois 60208)

  • Duncan I. Simester

    ()
    (Sloan School of Management, Massachusetts Institute of Technology, 38 Memorial Drive, Cambridge, Massachusetts 02142)

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    Abstract

    We use the results of three large-scale field experiments to investigate how the depth of a current price promotion affects future purchasing of first-time and established customers. While most previous studies have focused on packaged goods sold in grocery stores, we consider durable goods sold through a direct mail catalog. The findings reveal different effects for first-time and established customers. Deeper price discounts in the current period future purchases by first-time customers (a positive long-run effect) but future purchases by established customers (a negative long-run effect). Overall, the results show evidence of several long-run effects: forward buying, selection, customer learning, and increased deal sensitivity. Short-run metrics that ignore these effects overstate the overall change in demand for established customers. The implication is that if prices are set based on short-run elasticity, then they will be too low. Among first-time customers, the short-run metrics underestimate the total increase in demand. If prices are set based on short-run elasticity, then they will be too high.

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    File URL: http://dx.doi.org/10.1287/mksc.1030.0040
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 23 (2004)
    Issue (Month): 1 (February)
    Pages: 4-20

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    Handle: RePEc:inm:ormksc:v:23:y:2004:i:1:p:4-20

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    Related research

    Keywords: price promotions; pricing; long-term effects; forward buying; purchase acceleration; deal sensitivity; catalogs;

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    Cited by:
    1. Mihai TICHINDELEAN, 2013. "Models Used for Measuring Customer Engagement," Expert Journal of Marketing, Sprint Investify, vol. 1(1), pages 38-49.
    2. Eric Anderson & Nanda Kumar, 2007. "Price competition with repeat, loyal buyers," Quantitative Marketing and Economics, Springer, vol. 5(4), pages 333-359, December.
    3. Dekimpe, M.G. & Hanssens, D.M. & Nijs, V.R. & Steenkamp, J-B.E.M., 2003. "Measuring Short- and Long-run Promotional Effectiveness on Scanner Data Using Persistence Modeling," ERIM Report Series Research in Management ERS-2003-087-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 University Rotterdam.
    4. Ron Borzekowski & Raphael Thomadsen & Charles Taragin, 2009. "Competition and price discrimination in the market for mailing lists," Quantitative Marketing and Economics, Springer, vol. 7(2), pages 147-179, June.
    5. MartI´n-Herrán, Guiomar & Sigué, Simon P., 2011. "Prices, promotions, and channel profitability: Was the conventional wisdom mistaken?," European Journal of Operational Research, Elsevier, vol. 211(2), pages 415-425, June.
    6. Bart Bronnenberg & Jean Dubé & Carl Mela & Paulo Albuquerque & Tulin Erdem & Brett Gordon & Dominique Hanssens & Guenter Hitsch & Han Hong & Baohong Sun, 2008. "Measuring long-run marketing effects and their implications for long-run marketing decisions," Marketing Letters, Springer, vol. 19(3), pages 367-382, December.
    7. Horváth, C. & Fok, D., 2008. "Moderating Factors of Immediate, Dynamic, and Long-run Cross-Price Effects," ERIM Report Series Research in Management ERS-2008-042-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 University Rotterdam.
    8. Oyner, Olga K. & Sukhorukove, Olga, 2013. "Using CLV concept for marketing budgets allocation," jbm - Journal of Business Market Management, Free University Berlin, Marketing Department, vol. 6(2), pages 91-106.
    9. Wagner Kamakura & Carl Mela & Asim Ansari & Anand Bodapati & Pete Fader & Raghuram Iyengar & Prasad Naik & Scott Neslin & Baohong Sun & Peter Verhoef & Michel Wedel & Ron Wilcox, 2005. "Choice Models and Customer Relationship Management," Marketing Letters, Springer, vol. 16(3), pages 279-291, December.
    10. Avi Goldfarb & Teck-Hua Ho & Wilfred Amaldoss & Alexander Brown & Yan Chen & Tony Cui & Alberto Galasso & Tanjim Hossain & Ming Hsu & Noah Lim & Mo Xiao & Botao Yang, 2012. "Behavioral models of managerial decision-making," Marketing Letters, Springer, vol. 23(2), pages 405-421, June.
    11. Malcolm Smith & Chen Chang, 2009. "The impact of customer-related strategies on shareholder value: evidence from Taiwan," Asian Review of Accounting, Emerald Group Publishing, vol. 17(3), pages 247-268, September.

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