Dynamic effects of price promotions: field evidence, consumer search, and supply-side implications

Andrés Elberg (), Pedro M. Gardete (), Rosario Macera () and Carlos Noton
Additional contact information
Andrés Elberg: Diego Portales University
Pedro M. Gardete: Stanford University
Rosario Macera: Universidad de los Andes

Quantitative Marketing and Economics (QME), 2019, vol. 17, issue 1, No 1, 58 pages

Abstract: Abstract This paper investigates the dynamic effects of price promotions in a retail setting through the use of a large-scale field experiment varying the promotion depths of 170 products across 17 categories in 10 supermarkets of a major retailer in Chile. In the intervention phase of the experiment, treated customers were exposed to deep discounts (approximately 30%), whereas control customers were exposed to shallow discounts (approximately 10%). In the subsequent measurement phase, the promotion schedule held discount levels constant across groups. We find that treated customers were 22.4% more likely to buy promoted items than their control counterparts, despite facing the same promotional deals. Strikingly, the magnitude of the dynamic effects of price promotions (when promotional depths are equal across conditions) is 61% of the promotional effects induced by offering shallow vs. deep discounts during the intervention phase. The result is robust to other concurrent dynamic forces, including consumer stockpiling behavior and state dependence. We use the experimental variation and historical promotional activities to inform a demand-side model in which consumers search for deals, and a supply-side model in which firms compete for those consumers. We find that small manufacturers can benefit from heightened promotion sensitivity by using promotions to induce future consideration. However, when unit margins are high, heightened promotion sensitivity leads to fierce competition, making all firms worse off.

Keywords: Price promotions; Dynamic effects; Consumer search; Bertrand supertraps; Field experiments (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11129-018-9205-5

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