Product Price Level and Retail Price Promotion: An Empirical Analysis of Promotional Effect and Implications for Theory and Practice
Publication Date
8-16-2023
Abstract
Prior research suggests that price promotions by higher-priced products generate greater sales lift than those by lower-priced products. This view implies that higher-priced products should promote more often, all else equal. However, this assertion largely rests on the asymmetric price effect, which holds that promotions by higher-priced national brands (NBs) draw disproportionately from lower-priced store brands (SBs), thereby confounding price level (high vs. low) with brand type (NB vs. SB). In other words, it remains unclear whether higher-priced NBs are more promotion elastic because of their price level, or simply because they are NBs. This paper disentangles the effects of price level and brand type by analyzing nearly 700 million observations for 60,000 UPC products across 30 grocery categories (2016–2019). The authors find that while NBs are generally more promotion-elastic than SBs (promotion elasticities of -3.52 vs. -2.47), the role of price level depends critically on the brand type. For NBs, lower-priced products benefit from 4% greater promotion elasticities, whereas for SBs, higher-priced products exhibit 10% greater promotion elasticities. The paper also examines and documents sizable heterogeneity in these effects across categories and markets and assesses the category-level sales lift of promotions.
Document Type
Article
Keywords
price promotion, retailing, store brands, sales decomposition, empirics-first
Disciplines
Marketing
DOI
10.2139/ssrn.4562420
Source
SMU Cox: Marketing (Topic)
Language
English
