Category expansion through cross-channel demand spillovers

Ali Umut Guler

International Journal of Research in Marketing, 2023, vol. 40, issue 3, 629-658

Abstract: Does the local presence of premium branded stores with strong associations to a product group help promote the relevant category as a whole? Based on the Starbucks example, this paper documents such a demand spillover effect for coffee across channels and firms: The firm’s stores stimulate coffee demand in mass-market grocery channels, benefiting rival firms that target consumption at home. I show the spillover at the household level, as well as with retail scanner data, employing a demand model to account for supply-side responses. To establish causality, I use a strict fixed effects specification with trend controls, and also validate the findings using instrumental variables based on the supply-side advantage to operating chain stores in proximate markets. In a representative market, the presence of a Starbucks stores boosts rival packaged coffee sales by 1.2%. The increase appears consistent a consumption stimulation effect of Starbucks stores acting as environmental cues for coffee, their main product. Evidence from other chains confirms the spillover, mainly from more premium brands with high demand-stimulating potential to lower-end mass products. The effect builds over time, and as cue theories predict, interacts positively with past consumption, suggesting a reinforcing effect on consumption habits.

Keywords: Demand spillovers; Channels; Retail; Consumption cues; Habit formation (search for similar items in EconPapers)
JEL-codes: D12 D18 D62 L81 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ijrema:v:40:y:2023:i:3:p:629-658

DOI: 10.1016/j.ijresmar.2023.05.002

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