Flanking in a Price War

Roger J. Calantone, Cornelia Droge, David S. Litvack and C. Anthony di Benedetto
Additional contact information
Roger J. Calantone: Department of Marketing, College of Business and Economics, University of Kentucky, Lexington, Kentucky 40506
Cornelia Droge: Department of Marketing and Transportation, Graduate School of Business Administration, Michigan State University, 324 Eppley Center, East Lansing, Michigan 48824-1121
David S. Litvack: Faculté D'Administration, University of Ottawa, 275 Nicholas, Ottawa, Ontario, Canada K1N 6N5
C. Anthony di Benedetto: Department of Marketing, College of Business and Economics, University of Kentucky, Lexington, Kentucky 40506

Interfaces, 1989, vol. 19, issue 2, 1-12

Abstract: This study tested the notion that stock-up grocery goods would have a different pattern of price sensitivity than nonstock-up goods. We used covariance design within a Bayesian decision framework to select the optimum price treatment strategy as well as the dollar risk associated with this strategy. The Bayesian decision framework also provided an optimal stopping rule for the experiment. The test results were successfully employed in a real-life retail grocery setting when an anticipated price war occurred. A small grocery chain, rather than responding in kind to competitive price cuts, implemented a precise, profit-preserving counterattack. As a result, the chain increased market share substantially, at the cost of only 1.2 percent of its gross margin, during the price war.

Keywords: marketing: pricing; industries: retail (search for similar items in EconPapers)
Date: 1989
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Citations: View citations in EconPapers (7)

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