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Measuring the Efficiency of Category-Level Sales Response to Promotions

Author

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  • Minakshi Trivedi

    (Department of Marketing, School of Management, University at Buffalo, Buffalo, New York 14260; and Department of Marketing, Neeley School of Business, Texas Christian University, Fort Worth, Texas 76129)

  • Dinesh K. Gauri

    (Department of Marketing, Sam M. Walton College of Business, University of Arkansas, Fayetteville, Arkansas 72701)

  • Yu Ma

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada)

Abstract

In this study, we focus on measuring the efficiency of category-level sales response to promotions across various categories and stores. Our heterogeneous stochastic frontier model allows us to attribute portions of this efficiency to specific characteristics of the stores and categories. Using our full PEM (promotional efficiency frontier) model, we analyze the efficiency of 20 frequently bought categories of a supermarket retailer and apply it to store-category-level data. We find that the average efficiency of category and store sales response across all categories and stores is 84.34%, with low values in categories such as spreads and fresh seafood and high values in categories such as frozen entrées and meat. We find that the variation in efficiency of this sales response can be attributed to specific store and category characteristics such as selling area of store, distance to competition, number of stock-keeping units in the category, and average interpurchase time. Unobserved heterogeneity is captured by the latent class approach that provides support for the existence of three segments. An understanding of the roles played by these characteristics in the efficiency of sales response can aid managers in devising a strategy that maximizes sales.

Suggested Citation

  • Minakshi Trivedi & Dinesh K. Gauri & Yu Ma, 2017. "Measuring the Efficiency of Category-Level Sales Response to Promotions," Management Science, INFORMS, vol. 63(10), pages 3473-3488, October.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:10:p:3473-3488
    DOI: 10.1287/mnsc.2016.2496
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    References listed on IDEAS

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