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Implications of parent brand inertia for multiproduct pricing

Author

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  • Polykarpos Pavlidis

    (Nielsen)

  • Paul B. Ellickson

    (University of Rochester)

Abstract

This paper explores and quantifies the importance of parent brand state dependence to forward looking pricing outcomes in the area of umbrella branding and multi-product firms. We show through numerical simulations that loyalty (inertia) to the parent brand can decrease prices and reduce profits, as well as mitigate or even reverse the benefits of joint profit maximization relative to sub-brand profit maximization. These effects are mediated by brand asymmetries and the relative magnitude of sub-brand state dependence effects. Empirically, we focus on the Yogurt category, where we consider parent brands with several sub-brands. Using household level scanner data, we estimate the parameters that characterize consumer demand while flexibly accounting for consumer heterogeneity. We also estimate unobserved product costs based on a forward looking price setting game. Through counterfactual analysis, we study the overall effect of parent brand state dependence on prices and profits, as well as the empirical impact of joint profit maximization and changes in firms’ beliefs regarding consumer inertia. Our findings have implications for markets where demand is likely characterized by parent brand dynamics.

Suggested Citation

  • Polykarpos Pavlidis & Paul B. Ellickson, 2017. "Implications of parent brand inertia for multiproduct pricing," Quantitative Marketing and Economics (QME), Springer, vol. 15(4), pages 369-407, December.
    • Handle: RePEc:kap:qmktec:v:15:y:2017:i:4:d:10.1007_s11129-017-9187-8
    DOI: 10.1007/s11129-017-9187-8
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    References listed on IDEAS

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    Cited by:

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    3. Richards, Timothy J. & Chenarides, Lauren & Çakir, Metin, 2022. "Dollar Store Entry," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322100, Agricultural and Applied Economics Association.
    4. Timothy J. Richards & Bradley J. Rickard, 2021. "Dynamic model of beer pricing and buyouts," Agribusiness, John Wiley & Sons, Ltd., vol. 37(4), pages 685-712, October.
    5. Yufeng Huang, 2022. "Tied Goods and Consumer Switching Costs," Marketing Science, INFORMS, vol. 41(1), pages 93-114, January.
    6. Juan M. C. Larrosa & Victoria Giordano & Gonzalo R. Ramírez Muñoz de Toro & Juan I. Uriarte, 2022. "Marketing attributes in yogurt weekly pricing in Argentina," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(3), pages 332-343, June.

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    More about this item

    Keywords

    State dependence; Multiproduct firms; Umbrella branding; Forward looking prices;
    All these keywords.

    JEL classification:

    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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