Working Papers

The Impact of Price Promotions on a Brand’s Market Share, Sales Pattern, and Profitability

Jan 1, 1986

Subject
Consumer response to sales promotion.

Type of Report
Description of analytical model

Objective
Tp obtain insight into the basic principles driving market response to short-term price reductions by the retailer.

Method
Develops a theoretical model of market response to promotion by a mature brand; implements model using data from 64-week purchase histories for 8 brand sizes of coffee from a SAMI scanner panel of 200 consumers; replicates analysis with IRI data on the purchase of 18 coffee brand sizes by 61 consumers over a different 2-year period; also analyzes data for light-duty detergent and cookies.

Findings

  • Different types of consumer response to promotion–e.g., brand switching, stockpiling, stockpiling and switching, buying only on promotion– have different effects on profitability. With the advent of scanner data, these individual responses can be incorporated into a sophisticated model for analyzing promotion profitability.
  • One principle inherent in the model is that “widely accepted, smaller preference brands” (i.e., brands which many consumers buy occasionally but which few consumers strongly prefer) can expect to get a bigger percentage response from each of their promotional offers that reaches consumers than can the larger preference brands in the market. This principle was confirmed by the data for three product classes across two cities, using two data sources, at different time periods.
  • Other managerially useful information resulted from the data analysis. For example, coffee consumers were very likely to switch brands in response to a promotion but not to stockpile or increase consumption. Consumers were most sensitive to promotion in the coffee category and least promotion sensitive for lightduty detergent.
  • Also, the research showed that different brands’ promotions were relatively more effective in different retail chains. Further, for the IRI data base, where information was available on price cuts, displays, and features, each of these promotional instruments was most effective in the retail chain that used it most sparingly but most intensively when it was used.

Target Audience/Applicability
Promotion managers

This resource is not available online.

By using MSI.org you agree to our use of cookies as identifiers and for other features of the site as described in our Privacy Policy.