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Effect of Sales on Brand Loyalty

  • Huang, Rui
  • Perloff, Jeffrey M
  • Villas-Boas, Sofia B

Although many theoretical industrial organization models are based on the existence of a critical mass of exogenously “brand loyal†consumers, we find little empirical evidence supporting these assumptions in the orange juice retail market. There are very few loyal consumers. More importantly, the frequency with which stores conduct sales affects the share of loyal types so that loyalty is endogenous rather than exogenous. Households’ demographics have statistically significant but economically minor effects on switching behavior. Switching across frozen and refrigerated states is very common, leading to more complicated substitution patterns and less loyalty than one observes looking at each state separately.

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Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt2qc1p7g9.

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Date of creation: 01 May 2006
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Handle: RePEc:cdl:agrebk:qt2qc1p7g9
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  1. Joseph Farrell and Carl Shapiro., 1988. "Dynamic Competition with Switching Costs," Economics Working Papers 8865, University of California at Berkeley.
  2. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, 03.
  3. Richard A. Colombo & Donald G. Morrison, 1989. "Note—A Brand Switching Model with Implications for Marketing Strategies," Marketing Science, INFORMS, vol. 8(1), pages 89-99.
  4. Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
  5. Villas-Boas, J Miguel, 1995. "Models of Competitive Price Promotions: Some Empirical Evidence from the Coffee and Saltine Crackers Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 85-107, Spring.
  6. Deepak Agrawal, 1996. "Effect of Brand Loyalty on Advertising and Trade Promotions: A Game Theoretic Analysis with Empirical Evidence," Marketing Science, INFORMS, vol. 15(1), pages 86-108.
  7. Rajiv Lal, 1990. "Price Promotions: Limiting Competitive Encroachment," Marketing Science, INFORMS, vol. 9(3), pages 247-262.
  8. Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers 436, C.E.P.R. Discussion Papers.
  9. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
  10. Barry L. Bayus, 1992. "Brand Loyalty and Marketing Strategy: An Application to Home Appliances," Marketing Science, INFORMS, vol. 11(1), pages 21-38.
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