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Implications of Parent Brand Inertia for Multiproduct Pricing

Quantitative Marketing and Economics 15(4)

43 Pages Posted: 18 Sep 2012 Last revised: 29 Sep 2017

Polykarpos Pavlidis

Nielsen Marketing Analytics

Paul B. Ellickson

University of Rochester - Simon Business School

Date Written: September 14, 2012

Abstract

This paper explores and quantifies the importance of parent brand state dependence to forward looking pricing outcomes in the area of umbrella branding and multi-product firms. We show through numerical simulations that loyalty (inertia) to the parent brand can decrease prices and reduce profits, as well as mitigate or even reverse the benefits of joint profit maximization relative to sub-brand profit maximization. These effects are mediated by brand asymmetries and the relative magnitude of sub-brand state dependence effects. Empirically, we focus on the Yogurt category, where we consider parent brands with several sub-brands. Using household level scanner data, we estimate the parameters that characterize consumer demand while flexibly accounting for consumer heterogeneity. We also estimate unobserved product costs based on a forward looking price setting game. Through counterfactual analysis, we study the overall effect of parent brand state dependence on prices and profits, as well as the empirical impact of joint profit maximization and changes in firms' beliefs regarding consumer inertia. Our findings have implications for markets where demand is likely characterized by parent brand dynamics.

Keywords: state dependence, multiproduct firms, umbrella branding, dynamic pricing

JEL Classification: M31, L11, L13, L81

Suggested Citation

Pavlidis, Polykarpos and Ellickson, Paul B., Implications of Parent Brand Inertia for Multiproduct Pricing (September 14, 2012). Quantitative Marketing and Economics 15(4). Available at SSRN: https://ssrn.com/abstract=2147755 or http://dx.doi.org/10.2139/ssrn.2147755

Polykarpos Pavlidis

Nielsen Marketing Analytics ( email )

1603 Orrington Av.
Evanston, IL 60202
United States
5855034460 (Phone)

Paul Ellickson (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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