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The Role of Retail Competition, Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity

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  • Peter Boatwright
  • Sanjay Dhar
  • Peter Rossi

Abstract

We study the determinants of sensitivity to the promotional activities of temporary price reductions, displays, and feature advertisements. Both the theoretical and empirical literatures on price promotions suggest that retailer competition and the demographic composition of the shopping population should be linked to response to temporary price cuts. However, datasets that span different market areas have not been used to study the role of retail competition in determining price sensitivity. Moreover, little is known about the determinants of display and feature response. Very little attention has been focused on retailer strategic decisions such as price format (EDLP vs. Hi-Lo) or size of stores. We assemble a unique dataset with all U.S. markets and all major retail grocery chains represented in order to investigate the role of retail competition, account retail strategy, and demographics in determining promotional response. Previous work has not simultaneously modeled response to price, display, and feature promotions, which we do in a Bayesian Hierarchical model. We also allow for retailers in the same market to have correlated sales response equations through a variance component specification. Our results indicate that retail strategic variables such as price format are the most important determinants of promotional response, followed by demographic variables. Surprisingly, we find that variables measuring the extent of retail competition are not important in explaining promotional response. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Peter Boatwright & Sanjay Dhar & Peter Rossi, 2004. "The Role of Retail Competition, Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity," Quantitative Marketing and Economics (QME), Springer, vol. 2(2), pages 169-190, June.
  • Handle: RePEc:kap:qmktec:v:2:y:2004:i:2:p:169-190
    DOI: 10.1023/B:QMEC.0000027777.29554.8b
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:jouret:v:92:y:2016:i:2:p:218-225 is not listed on IDEAS
    2. Steven Tenn, 2006. "Avoiding aggregation bias in demand estimation: A multivariate promotional disaggregation approach," Quantitative Marketing and Economics (QME), Springer, vol. 4(4), pages 383-405, December.
    3. repec:eee:jouret:v:84:y:2008:i:3:p:256-267 is not listed on IDEAS
    4. repec:eee:jouret:v:86:y:2010:i:4:p:336-354 is not listed on IDEAS
    5. Minha Hwang & Bart J. Bronnenberg & Raphael Thomadsen, 2010. "An Empirical Analysis of Assortment Similarities Across U.S. Supermarkets," Marketing Science, INFORMS, vol. 29(5), pages 858-879, 09-10.
    6. Dinesh Kumar Gauri & Janos Gabor Pauler & Minakshi Trivedi, 2009. "Benchmarking Performance in Retail Chains: An Integrated Approach," Marketing Science, INFORMS, vol. 28(3), pages 502-515, 05-06.
    7. Hwang, M. & Bronnenberg, B.J. & Thomadsen, R., 2010. "An empirical analysis of assortment similarities across U.S. supermarkets," Other publications TiSEM adc990b3-1d5b-4fab-8679-a, Tilburg University, School of Economics and Management.
    8. Crabbe, M. & Vandebroek, M., 2012. "Improving the efficiency of individualized designs for the mixed logit choice model by including covariates," Computational Statistics & Data Analysis, Elsevier, vol. 56(6), pages 2059-2072.
    9. repec:eee:jouret:v:88:y:2012:i:1:p:34-46 is not listed on IDEAS
    10. Pauler, Gabor & Trivedi, Minakshi & Gauri, Dinesh Kumar, 2009. "Assessing store performance models," European Journal of Operational Research, Elsevier, vol. 197(1), pages 349-359, August.
    11. repec:eee:jouret:v:87:y:2011:i:s1:p:s43-s52 is not listed on IDEAS
    12. repec:eee:jouret:v:89:y:2013:i:1:p:1-14 is not listed on IDEAS
    13. Jean-Pierre Dubé & Puneet Manchanda, 2005. "Differences in Dynamic Brand Competition Across Markets: An Empirical Analysis," Marketing Science, INFORMS, vol. 24(1), pages 81-95, September.
    14. Haans, A.J. & Gijsbrechts, E., 2011. "One-deal-fits-all? : On category sales promotion effectiveness in smaller versus larger supermarkets," Other publications TiSEM 2c1a69db-bdfa-4988-a84c-4, Tilburg University, School of Economics and Management.
    15. Dennis Campbell & Srikant M. Datar & Tatiana Sandino, 2008. "Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry," Harvard Business School Working Papers 08-091, Harvard Business School.
    16. Foxall, Gordon R. & Yan, Ji & Oliveira-Castro, Jorge M. & Wells, Victoria K., 2013. "Brand-related and situational influences on demand elasticity," Journal of Business Research, Elsevier, vol. 66(1), pages 73-81.
    17. Karsten Hansen & Vishal Singh & Pradeep Chintagunta, 2006. "Understanding Store-Brand Purchase Behavior Across Categories," Marketing Science, INFORMS, vol. 25(1), pages 75-90, 01-02.
    18. repec:eee:ijrema:v:34:y:2017:i:3:p:694-716 is not listed on IDEAS
    19. repec:eee:jouret:v:87:y:2011:i:4:p:427-443 is not listed on IDEAS
    20. repec:eee:joreco:v:30:y:2016:i:c:p:105-115 is not listed on IDEAS

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