What Happens When a Retailer Drops a Product Category? Investigating the Consequences of Ending Tobacco Sales

64 Pages Posted: 25 Aug 2018 Last revised: 28 Jul 2019

See all articles by Ali Goli

Ali Goli

University of Chicago - Booth School of Business

Pradeep K. Chintagunta

University of Chicago

Date Written: July 2, 2019

Abstract

We measure the cross-category spillover effects of a retailer changing its assortment at the extensive margin (by dropping an entire category from its portfolio) on the outcomes for its rivals in the industry.By leveraging the quasi-experimental nature of the exit by a national pharmacy chain, hereinafter referred to as the Exiting Chain (EC) from the tobacco category, we measure the effects of this event on the revenue generated by non-tobacco products at rival pharmacy chains. We show, using Nielsen RMS data, that for each 1% increase of cigarettes sales in non-EC stores that are located near an“exiting” EC store relative to those non-EC drugstores that are not, the revenue generated by non-tobacco products grows by 0.04%. Next, using Nielsen Homescan panel data, we try to uncover the mechanism underlying this spillover by looking at how the behavior of smokers and non-smokers at EC stores is affected by the decision. We find that the frequency of trips to the exiting stores that included some tobacco product was negatively affected, suggesting that tobacco was one of the main drivers of store patronage for those trips. For non-smokers, we find that they react to EC’s action by increasing the frequency of trips to the exiting chain. However, the gains from non-smokers does not seem to outweigh losses due to smokers. To assess the generalizability of our results, we analyze the impact of a set of tobacco bans imposed by municipalities in Massachusetts and find cross-category loss patterns for drug stores in those areas that are similar to the gains to rival stores from EC’s exit.

Keywords: cross-category effects, tobacco marketing, customer loyalty, difference-in-differences

Suggested Citation

Goli, Ali and Chintagunta, Pradeep K., What Happens When a Retailer Drops a Product Category? Investigating the Consequences of Ending Tobacco Sales (July 2, 2019). Available at SSRN: https://ssrn.com/abstract=3232580 or http://dx.doi.org/10.2139/ssrn.3232580

Ali Goli (Contact Author)

University of Chicago - Booth School of Business ( email )

Chicago, IL
United States

Pradeep K. Chintagunta

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
137
Abstract Views
858
rank
210,525
PlumX Metrics