IDEAS home Printed from https://ideas.repec.org/p/rug/rugwps/04-262.html
   My bibliography  Save this paper

Why promotion strategies based on market basket analysis do not work

Author

Listed:
  • B. VINDEVOGEL

    ()

  • D. VAN DEN POEL

    ()

  • G. WETS

Abstract

In text books as well as in the business literature, market basket analysis is often promoted as a means to obtain product associations to base a retailer’s promotion strategy on. They argue that associated products with a high lift/interest can be promoted effectively by only discounting just one of the two products. Implicitly, they argue that market basket analysis automatically identifies complements. In this research, we show that this implicit assumption does not hold. Our empirical analysis reveals that market basket analysis identifies as many substitutes as complements. Therefore, market basket analysis cannot be used to build a promotion expert system for retailers. Instead, we advice to base the promotion strategy on cross-price elasticities. We conduct this research using scanner data of a large European retailer. Multivariate time-series techniques are used to identify both short-run as well as long-run (persistent) effects of promotions.

Suggested Citation

  • B. Vindevogel & D. Van Den Poel & G. Wets, 2004. "Why promotion strategies based on market basket analysis do not work," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/262, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:04/262
    as

    Download full text from publisher

    File URL: http://wps-feb.ugent.be/Papers/wp_04_262.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Evans, Lewis & Wells, Graeme, 1983. "An alternative approach to simulating var models," Economics Letters, Elsevier, vol. 12(1), pages 23-29.
    2. G. Dekimpe, Marnik & Hanssens, Dominique M. & Silva-Risso, Jorge M., 1998. "Long-run effects of price promotions in scanner markets," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 269-291, November.
    3. Magid M. Abraham & Leonard M. Lodish, 1993. "An Implemented System for Improving Promotion Productivity Using Store Scanner Data," Marketing Science, INFORMS, vol. 12(3), pages 248-269.
    4. Marnik G. Dekimpe & Dominique M. Hanssens, 1995. "Empirical Generalizations About Market Evolution and Stationarity," Marketing Science, INFORMS, vol. 14(3_supplem), pages 109-121.
    5. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-273.
    6. Jean-Pierre Dubé, 2004. "Multiple Discreteness and Product Differentiation: Demand for Carbonated Soft Drinks," Marketing Science, INFORMS, vol. 23(1), pages 66-81, September.
    7. D. VAN DEN POEL & Jan J. DE SCHAMPHELAERE & G. WETS, 2003. "Direct and Indirect Effects of Retail Promotions," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/202, Ghent University, Faculty of Economics and Business Administration.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. B. Vindevogel & D. Van Den Poel & G. Wets, 2004. "Dynamic cross-sales effects of price promotions: Empirical generalizations," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/276, Ghent University, Faculty of Economics and Business Administration.

    More about this item

    Keywords

    Market basket analysis; cross-price elasticities; promotion strategy; multivariate time-series techniques; retailing;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. Loss leader in Wikipedia English ne '')
    2. Produit d'appel in Wikipedia French ne '')

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rug:rugwps:04/262. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nathalie Verhaeghe). General contact details of provider: http://edirc.repec.org/data/ferugbe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.