The Effects of Menu Costs on Supply Chain Efficiency: Evidence from Adoption of the Electronic Shelf Label Technology
26 Pages Posted: 25 Jul 2017
Date Written: July 22, 2017
We use the adoption of electronic shelf labels (ESLs) by a major international grocery retailer in 2015 in the United Kingdom to identify the effects of reducing physical menu costs (operational costs of price adjustment) on supply chain efficiency. The ESL technology essentially eliminates the physical costs associated with price adjustment (e.g., costs of printing and distributing price tags). We find that the elimination of physical menu costs benefits all supply chain stakeholders (retailer, consumers, suppliers). In our setting, daily revenues increased, the average price per unit sold decreased, and daily sales volumes increased as a result of ESLs. We also find that ESL adoption increased price-adjustment volume, decreased the average size of a price adjustment, and decreased the batching of price changes across different products. Finally, we find that ESL adoption had a statistically significant effect on the volume of downward price changes, but not on the volume of upward price changes, which explains the direction of the change in operational outcomes.
Keywords: Menu Cost, Dynamic Pricing, Ordering, Revenue Management, Welfare Analysis
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