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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)

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.

Suggested Citation

  • Eric T. Anderson & Duncan I. Simester, 2004. "Long-Run Effects of Promotion Depth on New Versus Established Customers: Three Field Studies," Marketing Science, INFORMS, vol. 23(1), pages 4-20, February.
    • Handle: RePEc:inm:ormksc:v:23:y:2004:i:1:p:4-20
    DOI: 10.1287/mksc.1030.0040
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    References listed on IDEAS

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