Why promotion strategies based on market basket analysis do not work
AbstractIn text books as well as in the business literature, market basket analysis is often promoted as a means to obtain product associations to base a retailer’s promotion strategy on. They argue that associated products with a high lift/interest can be promoted effectively by only discounting just one of the two products. Implicitly, they argue that market basket analysis automatically identifies complements. In this research, we show that this implicit assumption does not hold. Our empirical analysis reveals that market basket analysis identifies as many substitutes as complements. Therefore, market basket analysis cannot be used to build a promotion expert system for retailers. Instead, we advice to base the promotion strategy on cross-price elasticities. We conduct this research using scanner data of a large European retailer. Multivariate time-series techniques are used to identify both short-run as well as long-run (persistent) effects of promotions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 04/262.
Length: 20 pages
Date of creation: Oct 2004
Date of revision:
Market basket analysis; cross-price elasticities; promotion strategy; multivariate time-series techniques; retailing;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-21 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Pierre Dubé, 2004. "Multiple Discreteness and Product Differentiation: Demand for Carbonated Soft Drinks," Marketing Science, INFORMS, vol. 23(1), pages 66-81, September.
- Evans, Lewis & Wells, Graeme, 1983. "An alternative approach to simulating var models," Economics Letters, Elsevier, vol. 12(1), pages 23-29.
- Dekimpe, M.G. & Hanssens, D., 1995. "The persistence of marketing effects on sales," Open Access publications from Tilburg University urn:nbn:nl:ui:12-358916, Tilburg University.
- D. VAN DEN POEL & Jan J. DE SCHAMPHELAERE & G. WETS, 2003. "Direct and Indirect Effects of Retail Promotions," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/202, Ghent University, Faculty of Economics and Business Administration.
- Marnik G. Dekimpe & Dominique M. Hanssens, 1995. "Empirical Generalizations About Market Evolution and Stationarity," Marketing Science, INFORMS, vol. 14(3_supplem), pages G109-G121.
- G. Dekimpe, Marnik & Hanssens, Dominique M. & Silva-Risso, Jorge M., 1998. "Long-run effects of price promotions in scanner markets," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 269-291, November.
- Magid M. Abraham & Leonard M. Lodish, 1993. "An Implemented System for Improving Promotion Productivity Using Store Scanner Data," Marketing Science, INFORMS, vol. 12(3), pages 248-269.
- Dekimpe, M.G. & Hanssens, D., 1995. "Empirical generalizations about market evolution and stationarity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-358840, Tilburg University.
- Nijs, VR & Dekimpe, Marnik & Steenkamp, J & Hanssens, DM, 2001. "The category demand effects of price promotions," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/119330, Katholieke Universiteit Leuven.
- Dolado, Juan José & Jenkinson, Tim & Sosvilla-Rivero, Simón, 1990.
"Cointegration and Unit Roots,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/3321, Universidad Carlos III de Madrid.
- B. Vindevogel & D. Van Den Poel & G. Wets, 2004. "Dynamic cross-sales effects of price promotions: Empirical generalizations," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/276, Ghent University, Faculty of Economics and Business Administration.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nathalie Verhaeghe).
If references are entirely missing, you can add them using this form.