Product Price Level and Retail Price Promotion: An Empirics-First Analysis Of Promotional Conduct and Effect and Implications for Theory and Practice

60 Pages Posted: 25 Sep 2023

See all articles by Kristopher Keller

Kristopher Keller

University of North Carolina (UNC) at Chapel Hill - Marketing Area

Raj Sethuraman

Southern Methodist University (SMU) - Marketing Department

Date Written: August 16, 2023

Abstract

Conventional wisdom states that higher-priced products are promoted more frequently and deeply than lower-priced products because they generate greater sales lift. But this wisdom from the 1990s presumed a market comprising mainly of high-priced national brands and low-priced store brands. Nowadays, the retailscape has changed and features high-priced store brands such that we now have both high-priced and low-priced national and store brands. Furthermore, conventional wisdom considered only brand switching and not incremental category sales. Hence, two relevant questions arise: (i) Are higher-priced products discounted more frequently and deeply than lower-priced products across national and store brands? (ii) Do price promotions of higher-priced products yield greater sales lifts and higher incremental sales than promotions by lower-priced products? Employing an empirics-first approach and analyzing over 100 million observations from more than 500 markets and 8,500 stores in two categories, this paper’s results reveal several empirical regularities that confirm, add nuance to, or challenge conventional wisdom. For example, higher-priced products are promoted more frequently and deeply than lower-priced products but generate lower incremental category sales. Another novel finding is that price exerts greater influence for store than national brands. These results guide theory development and suggest a range of price promotion strategies.

Keywords: price promotion, retailing, store brands, sales decomposition, empirics-first

JEL Classification: M31

Suggested Citation

Keller, Kristopher and Sethuraman, Raj, Product Price Level and Retail Price Promotion: An Empirics-First Analysis Of Promotional Conduct and Effect and Implications for Theory and Practice (August 16, 2023). SMU Cox School of Business Research Paper No. 23-18, Kenan Institute of Private Enterprise Research Paper No. 4562420, Available at SSRN: https://ssrn.com/abstract=4562420 or http://dx.doi.org/10.2139/ssrn.4562420

Kristopher Keller (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Marketing Area

Chapel Hill, NC 27599
United States

Raj Sethuraman

Southern Methodist University (SMU) - Marketing Department ( email )

United States

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