Retailers' Dynamic Pricing and Ordering Decisions: Category Management Versus Brand-by-Brand Approaches

Journal of Retailing 86 (2, 2010) 172-183

Tuck School of Business Working Paper No. 2552122

12 Pages Posted: 21 Jan 2015

See all articles by Joseph M. Hall

Joseph M. Hall

Tuck School of Business at Dartmouth

Praveen K. Kopalle

Dartmouth College - Tuck School of Business

Aradhna Krishna

University of Michigan, Stephen M. Ross School of Business

Date Written: 2010

Abstract

This paper provides a framework for retailer pricing and ordering decisions in a dynamic category management setting. In this regard, the key contributions of this paper are as follows. First, we develop a multi-brand ordering and pricing model that endogenizes retailer forward buying and maximizes profitability for the category. The model considers (i) manufacturer trade deals to retailers, (ii) ordering costs incurred by the retailer, (iii) retailer forward buying behavior, and (iv) both own- and cross-price effects of all the brands in the category. Second, we use this model to compare differences in ordering and pricing decisions, and in profits, resulting from using a category management versus a brand-by-brand management approach. Our approach allows us to derive implications in a dynamic setting about the impact of interdependence among the brands upon decisions on pass-through of trade deals and retailer order quantity. We show that category management results in noticeably higher profits versus brand-by-brand and cost-plus (markup) approaches. Further, our results suggest an interaction between a brand’s own-price effect and its cross-price effect emerges. If the cross-price effect for a brand is low – that is, the brand takes away relatively few sales from the other brands – the retail pass-through should increase with that brand’s own-price effect. On the other hand, when the cross-price effect is high, the retail pass-through decreases with the brand’s own-price effect.

Suggested Citation

Hall, Joseph M. and Kopalle, Praveen K. and Krishna, Aradhna, Retailers' Dynamic Pricing and Ordering Decisions: Category Management Versus Brand-by-Brand Approaches (2010). Journal of Retailing 86 (2, 2010) 172-183, Tuck School of Business Working Paper No. 2552122, Available at SSRN: https://ssrn.com/abstract=2552122

Joseph M. Hall (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

Praveen K. Kopalle

Dartmouth College - Tuck School of Business ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-3612 (Phone)
603-646-1308 (Fax)

Aradhna Krishna

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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