Price promotions in emerging markets

Sameer Mathur and Maxim Sinitsyn

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 404-416

Abstract: How should price promotion strategies be modified in an emerging market (e.g., India, China) compared to those employed in developed markets (e.g., USA, Canada)? Specifically, how should the presence of middle-class consumers with limited ability to pay, prevalent in an emerging market, influence the depth and frequency of price promotions offered by competing firms? Lay intuition suggests that firms should promote more frequently and offer deeper discounts in emerging markets, in order to effectively sell to limited income, middle-class consumers. We construct a theoretical model that investigates the effect of the middle-class segment on firms' price promotion strategies. Contrary to lay intuition, our analysis reveals precisely the opposite results. First, price promotions offered in an emerging market (with middle-class consumers) are shallower than those offered in a developed market (without middle-class consumers). Second, relatively deep price promotions occur less frequently in an emerging market, compared to a developed market. These theoretical findings are consistent with the empirical evidence we gathered from the supermarkets in India and in Canada.

Keywords: Mixed strategies; Price promotions; Price competition; Emerging markets (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 L81 M31 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:5:p:404-416

DOI: 10.1016/j.ijindorg.2013.07.001

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