The Effects of Menu Costs on Retail Performance: Evidence from Adoption of the Electronic Shelf Label Technology

32 Pages Posted: 25 Jul 2017 Last revised: 10 Sep 2019

Date Written: July 22, 2017

Abstract

We use the adoption of electronic shelf labels (ESLs) by an international grocery retailer in 2015 to identify the effects of physical menu costs (i.e., labor and material costs of price adjustment) on retail performance. We find that the installation of ESLs increased gross margins substantially, which implies profit gains that go far beyond labor cost savings. We also explore the mechanism behind this effect. We find that the lift in gross margins was associated with an increase in quantity sold and a decrease in price per unit sold, and that the lift primarily came from low-shelf life product categories. Moreover, we find that more and smaller price changes occurred with ESLs. These additional price changes were mostly price decreases, and were dispersed in time. Our findings are consistent with reductions in both variable and fixed menu costs (i.e., both costs that scale with the number of products affected and costs that do not).

Keywords: Menu Cost, Dynamic Pricing, Ordering, Revenue Management, Welfare Analysis

Suggested Citation

Stamatopoulos, Ioannis and Bassamboo, Achal and Moreno, Antonio, The Effects of Menu Costs on Retail Performance: Evidence from Adoption of the Electronic Shelf Label Technology (July 22, 2017). Available at SSRN: https://ssrn.com/abstract=3007095 or http://dx.doi.org/10.2139/ssrn.3007095

Ioannis Stamatopoulos (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

2110 Speedway B6000
Austin, TX 78705
United States

Achal Bassamboo

Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS) ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Antonio Moreno

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=1029325

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