Quantitative Marketing and Economics

, Volume 2, Issue 2, pp 169–190

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

  • Peter Boatwright
  • Sanjay Dhar
  • Peter E. Rossi
Article

DOI: 10.1023/B:QMEC.0000027777.29554.8b

Cite this article as:
Boatwright, P., Dhar, S. & Rossi, P.E. Quantitative Marketing and Economics (2004) 2: 169. doi:10.1023/B:QMEC.0000027777.29554.8b

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.

promotionspricingretail strategyaccount modeling

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Peter Boatwright
    • 1
  • Sanjay Dhar
    • 2
  • Peter E. Rossi
    • 2
  1. 1.The Tepper School of BusinessCarnegie Mellon UniversityPittsburgh
  2. 2.Graduate School of BusinessUniversity of ChicagoChicago