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Duration of Price Promotion and Retail Profit: An In-depth Study Based on Point-of-Sale Data

Zhen Li, Katsutoshi Yada and Yusuke Zennyo

MPRA Paper from University Library of Munich, Germany

Abstract: Anecdotal evidence has shown that retail price promotions can help small and medium-sized retailers enhance their sales, and thus, retail profits. However, most marketing managers usually stop a promotion after a certain duration. This study aims to explain why these retailers discontinue their price promotion. Our approach posits that the promotion’s overall contributions to the total retail profit progressively diminish with time. We present a theoretical framework to explain the relationship between duration and profit effects of price promotions and propose a statistical model to empirically examine this framework using point-of-sale (POS) data. Our findings provide empirical support that the overall profit effects of price promotions have a downward trend with elapsed time, upholding the hypothesis. The results are helpful for marketers to understand how price promotions dynamically influence retail profits and when the promotion should be terminated.

Keywords: Duration of Price Promotion; Elapsed Time; Retail Profit; Customer Traffic; Product Loyalty; Point-of-Sale Data (search for similar items in EconPapers)
JEL-codes: M31 (search for similar items in EconPapers)
Date: 2019-03-30
New Economics Papers: this item is included in nep-mkt
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