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An Empirical Analysis of Determinants of Retailer Pricing Strategy

  • 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)

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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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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  1. Rajiv Lal & J. Miguel Villas-Boas, 1998. "Price Promotions and Trade Deals with Multiproduct Retailers," Management Science, INFORMS, vol. 44(7), pages 935-949, July.
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  11. Ram C. Rao & Niladri Syam, 2001. "Equilibrium Price Communication and Unadvertised Specials by Competing Supermarkets," Marketing Science, INFORMS, vol. 20(1), pages 61-81, June.
  12. Alba, Joseph W, et al, 1994. " The Influence of Prior Beliefs, Frequency Cues, and Magnitude Cues on Consumers' Perceptions of Comparative Price Data," Journal of Consumer Research, Oxford University Press, vol. 21(2), pages 219-35, September.
  13. Sanjay K. Dhar & Stephen J. Hoch, 1997. "Why Store Brand Penetration Varies by Retailer," Marketing Science, INFORMS, vol. 16(3), pages 208-227.
  14. J. Jeffrey Inman & Leigh McAlister, 1993. "A Retailer Promotion Policy Model Considering Promotion Signal Sensitivity," Marketing Science, INFORMS, vol. 12(4), pages 339-356.
  15. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
  16. Anil Kaul & Dick R. Wittink, 1995. "Empirical Generalizations About the Impact of Advertising on Price Sensitivity and Price," Marketing Science, INFORMS, vol. 14(3_supplem), pages G151-G160.
  17. David R. Bell & Jeongwen Chiang & V. Padmanabhan, 1999. "The Decomposition of Promotional Response: An Empirical Generalization," Marketing Science, INFORMS, vol. 18(4), pages 504-526.
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