The Role of Retail Competition, Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity

38 Pages Posted: 28 Nov 2003

See all articles by Peter E. Rossi

Peter E. Rossi

University of California, Los Angeles (UCLA) - Anderson School of Management

Sanjay K. Dhar

University of Chicago - Marketing Management

Peter Boatwright

Carnegie Mellon University - David A. Tepper School of Business

Date Written: July 2002

Abstract

We study the determinants of sensitivity to the promotional activities of temporary price reductions, displays, and feature advertisements. Both the theoretical and empirical literatures on price promotions suggest that retailer competition and the demographic composition of the shopping population should be linked to response to temporary price cuts. However, datasets that span different market areas have not been used to study the role of retail competition in determining price sensitivity. Moreover, little is known about the determinants of display and feature response. Very little attention has been focused on retailer strategic decisions such as price format (EDLP vs. Hi-Lo) or size of stores. We assemble a unique dataset with all U.S. markets and all major retail grocery chains represented in order to investigate the role of retail competition, account retail strategy, and demographics in determining promotional response. Previous work has not simultaneously modeled response to price, display, and feature promotions, which we do in a Bayesian Hierarchical model. We also allow for retailers in the same market to have correlated sales response equations through a variance component specification. Our results indicate that retail strategic variables such as price format are the most important determinants of promotional response, followed by demographic variables. Surprisingly, we find that variables measuring the extent of retail competition are not important in explaining promotional response.

Keywords: retailing, promotions, price sensitivity, retail competition

JEL Classification: L1, M3

Suggested Citation

Rossi, Peter E. and Dhar, Sanjay K. and Boatwright, Peter, The Role of Retail Competition, Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity (July 2002). Available at SSRN: https://ssrn.com/abstract=331541 or http://dx.doi.org/10.2139/ssrn.331541

Peter E. Rossi (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
773-294-8616 (Phone)

Sanjay K. Dhar

University of Chicago - Marketing Management ( email )

Rosenwald 331C
Chicago, IL 60637
United States
773-702-3005 (Phone)
773-702-0458 (Fax)

Peter Boatwright

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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