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Modeling coupon values for ready-to-eat breakfast cereals

  • Gregory K. Price

    (Economic Research Service, U.S. Department of Agriculture, 1800 M Street, NW, Room S-5199, Washington, DC 20036-5831. E-mail: gprice@ers.usda.gov)

  • John M. Connor

    (Department of Agricultural Economics, Purdue University, 1145 Krannert Building, West Lafayette, IN 47907-1145. E-mail: jconnor@purdue.edu)

This study identifies the determinants of coupon values at the brand level within the context of a complex marketing program. A two-equation, fixed-effects, panel-data model accounts for the bidirectional causality between brand prices and discount levels. The empirical model is fitted with data on household purchases of ready-to-eat (RTE) breakfast cereals and captures the industry's 1996 price cuts and discount reductions. Higher brand prices cause coupon values to rise, supporting the price discrimination hypothesis. Coupon values fall with in-store displays and more intense advertising but rise when couponed products are featured in store flyers. Discount levels are positively related to brand market share and the size of discounts redeemed for rival cereals. Coupon values fall with increasing brand loyalty among RTE cereal purchasers. Cereal prices are positively affected by coupon values, advertising expenditures, input costs, and the prices of competing brands. Inventory levels are negatively correlated with brand price. [EconLit citations: Q130, D120, L130]. © 2003 Wiley Periodicals, Inc. Agribusiness 19: 223-243, 2003.*

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File URL: http://hdl.handle.net/10.1002/agr.10048
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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 19 (2003)
Issue (Month): 2 ()
Pages: 223-243

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Handle: RePEc:wly:agribz:v:19:y:2003:i:2:p:223-243
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Price, Gregory K. & Connor, John M., 2001. "Modeling Coupon Values for Ready-To-Eat Breakfast Cereals," Research Reports 148374, University of Connecticut, Food Marketing Policy Center.
  2. Capps, Oral, Jr. & Seo, Seong-Cheon & Nichols, John P., 1997. "On The Estimation Of Advertising Effects For Branded Products: An Application To Spaghetti Sauces," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 29(02), December.
  3. Ronald B. Larson, 1997. "Using price discrimination theory to plan promotions," Agribusiness, John Wiley & Sons, Ltd., vol. 13(4), pages 401-408.
  4. Gerstner, Eitan & Hess, James D, 1991. "A Theory of Channel Price Promotions," American Economic Review, American Economic Association, vol. 81(4), pages 872-86, September.
  5. Stanley, Linda R & Tschirhart, John, 1991. "Hedonic Prices for a Nondurable Good: The Case of Breakfast Cereals," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 537-41, August.
  6. Gerstner, Eitan & Hess, James D & Holthausen, Duncan M, 1994. "Price Discrimination through a Distribution Channel: Theory and Evidence," American Economic Review, American Economic Association, vol. 84(5), pages 1437-45, December.
  7. Chakravarthi Narasimhan, 1984. "A Price Discrimination Theory of Coupons," Marketing Science, INFORMS, vol. 3(2), pages 128-147.
  8. Ronald W. Cotterill, 1999. "High cereal prices and the prospects for relief by expansion of private label and antitrust enforcement," Agribusiness, John Wiley & Sons, Ltd., vol. 15(2), pages 229-245.
  9. John M. Connor, 1999. "Breakfast cereals: The extreme food industry," Agribusiness, John Wiley & Sons, Ltd., vol. 15(2), pages 247-259.
  10. Scott A. Neslin, 1990. "A Market Response Model for Coupon Promotions," Marketing Science, INFORMS, vol. 9(2), pages 125-145.
  11. Connor, John M., 1997. "Couponing As A Horizontal And Vertical Strategy: Theory And Effects," Working Papers 14344, University of Minnesota, The Food Industry Center.
  12. Greg Shaffer & Z. John Zhang, 1995. "Competitive Coupon Targeting," Marketing Science, INFORMS, vol. 14(4), pages 395-416.
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