an analysis of the tradeoff between advertising and price discounting the authors examine an important influence on the price advertising tradeoff the ratio of price and advertising elasticities their theoretical analysis stresses the centrality of the elasticity r

consumption experience and sales promotion expenditure an economic theory of habit formation through consumption learning is developed to explain order differences in relative sales promotion expenditures among brands the theory applies to consumer brands in equilibrium markets where consumer information from sources other than advertising sales promotion and previous consumption experience is negligible three propositions are derived from the theory brands with more consumption experience 1 spend proportionately less on sales promotion as well as 2 on advertising and promotion combined and 3 place proportionately more emphasis on advertising relative to sales promotion these propositions are formulated as hypotheses and tested against empirical data from the pims project it is found that the data are generally consistent with the propositions in order to examine the robustness of the results the hypotheses are subjected to three different empirical tests each with different assumptions the findings are shown to be reasonably robust with re

comparing optima do simplifying assumptions affect conclusions consider a family of maximization models in which the optimum trades off beneficial and costly effects then comparative statics derived under many kinds of simplifying assumptions about the benefits technology are also true for general convex and nonconvex technologies for example any comparative statics conclusion about investment by a risk averse decision maker under uncertainty that holds when expected returns are described by a general linear function also holds for an arbitrary nonlinear expected return function

retail pricing and clearance sales sellers of new products are faced with having to guess demand conditions to set price appropriately but sellers are able to adjustprice over time and to learn from past mistakes additionally it is not necessary that all goods be sold with certainty it is sometimes better to set a high price and to risk no sale this process is modeledto explain retail pricing behavior and the time distribution of transactions prices start high and fall as a function of time on theshelf the initial price and rate of decline can be predicted and depends on thinness of the market the proportion of customers who are window shoppers and other observable characteristics copyright 1986 by american economic association

price discrimination through offers to match price in this paper a firm discriminates between two classes of customer who have a different cost of information by coupling a list price with an offer to match the pr ice of any other shop if the list price elsewhere is lower the firm will be successful in discrimination the list price of each firm is increasing in the number of sellers and the total sales are decreasi ng in the number of sellers furthermore if sellers coordinate they discriminate more efficaciously and increase their profits by increa sing their total sales copyright 1987 by the university of chicago

optimal inventory policies when ordering prices are random we consider a single item inventory model with deterministic demands at the beginning of each period a random ordering price is received according to a known distribution function a decision must be made as to how much if any of the item to order in each period so as to minimize total expected costs while satisfying all demands we show that in each period a sequence of critical price levels determines the optimal ordering strategy so that it is optimal to satisfy the demands of the next n periods if and only if the random price falls between the nth and the n 1st levels we derive recursive expressions that describe the critical price numbers and demonstrate the relationship of these expressions to minimal expected cost we study finite horizon as well as infinite horizon models and show that the critical number strategy is also average cost optimal

price promotions limiting competitive encroachment in this paper we explore equilibrium pricing strategies in an infinite horizon repeated game for an oligopoly we model the interactions between three firms in a market of switchers and loyals our analysis shows that if there are sufficiently large number of switchers in the market the demand parameter is within an acceptable range and the firms have a sufficiently low discount rate alternating promotions between national firms can be an outcome of a perfect nash equilibrium between competing firms this equilibrium results in an implicit collusion between national firms and therefore suggests that price promotions can be interpreted as a long run strategy pursued by national firms to defend their market shares from possible encroachments of a third firm in this way we attempt to provide an explanation for the patterns of promotion observed in some industries and in particular the beverage industry

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

a price discrimination theory of coupons the objective of this paper is to analyze the consumer s decision in electing to use cents off coupons distributed by manufacturers of consumer products arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers based on a price theoretic model it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers decisions implications derived from the model are tested using diary panel data

investigating household purchase timing decisions a conditional hazard function approach the purchase timing decision is an important component of the dynamics of a household s purchase behavior this decision is influenced by marketing and other variables and the modeling of this dependence has recently received attention in the literature in this paper we build on previous studies and develop a comprehensive stochastic model that incorporates the major factors influencing interpurchase times specifically we use a generalized version of cox s proportional hazard model to test among competing probability distributions for the interpurchase times while incorporating effects due to marketing variables observed household characteristics and unobserved heterogeneity across households the empirical finding from analyzing the iri coffee data suggests that the interpurchase times cannot be adequately described by probability distributions such as exponential erlang 2 or weibull the effects of unobserved heterogeneity are significant and they impact the estimates of the effects of the covariates we also find that a nonparametric procedure for estimating the effects of unobserved heterogeneity provides the best overall fit to the data and yields covariate estimates that are more consistent with prior expectations our model is validated by replicating the substantive empirical findings on an additional product category

stockpiling under price uncertainty and storage capacity constraints abstract a model is presented for the operation of an agent whose responsibility is to purchase and perhaps stockpile sufficient quantities of a certain commodity in order to satisfy an exogenous constant demand per time period this is the situation faced by a state agency which is responsible for the purchasing of oil products to satisfy the demand of a country in which demand for energy has stabilized at a certain level an important feature of the model is that the price of the commodity is described by a stochastic process this reflects the volatility of prices of oil products furthermore the model takes storage capacity constraints explicitly into account and thus can help to assess the optimal level of storage capacity expansion the relevant stochastic dynamic programming equations are derived and solved for the least cost function which turns out to be piecewise linear in the inventory level the storage capacity enters only in the computation of the constant term of the value function the solution of the dynamic programming equation leads also to the optimal purchasing strategy of agencies with different levels of flexibility in their policy in the model an agency can be allowed or not to resell from the stock and it can have finite or infinite storage capacity

demand forecasting with high dimensional data the case of sku retail sales forecasting with intra and inter category promotional information in marketing analytics applications in or the modeler often faces the problem of selecting key variables from a large number of possibilities for example sku level retail store sales are affected by inter and intra category effects which potentially need to be considered when deciding on promotional strategy and producing operational forecasts but no research has yet put this well accepted concept into forecasting practice an obvious obstacle is the ultra high dimensionality of the variable space this paper develops a four steps methodological framework to overcome the problem it is illustrated by investigating the value of both intra and inter category sku level promotional information in improving forecast accuracy the method consists of the identification of potentially influential categories the building of the explanatory variable space variable selection and model estimation by a multistage lasso regression and the use of a rolling scheme to generate forecasts the success of this new method for dealing with high dimensionality is demonstrated by improvements in forecasting accuracy compared to alternative methods of simplifying the variable space the empirical results show that models integrating more information perform significantly better than the baseline model when using the proposed methodology framework in general we can improve the forecasting accuracy by 12 6 percent over the model using only the sku s own predictors but of the improvements achieved 95 percent of it comes from the intra category information and only 5 percent from the inter category information the substantive marketing results also have implications for promotional category management

a retail store sku promotions optimization model for category multi period profit maximization consumer promotions are an important element of competitive dynamics in retail markets and make a significant difference in the retailer s profits but no study has so far included all the elements that are required to meet retail business objectives we extend the existing literatures by considering all the basic requirements for a promotional decision support system dss reliance on operational store level data only the ability to predict sales as a function of prices and the inclusion of other promotional variables affecting the category the new model delivers an optimizing promotional schedule at stock keeping unit sku level which maximizes multi period category level profit under the constraints of business rules typically applied in practice we first develop a high dimensional distributed lag demand model which integrates both cross sku competitive promotion information and cross period promotional influences we estimate the model by proposing a two stage sign constrained regularization approach to ensure realistic promotional parameters based on the demand model we then build a nonlinear integer programming model to maximize the retailer s category profits over a planning horizon under constraints that model important business rules the output of the model provides optimized prices display and feature advertising planning together with sales and profit forecasts empirical tests over a number of stores and categories using supermarket data suggest that our model generates accurate sales forecasts and increases category profits by approximately 17 and that including cross item and cross period effects is also valuable

a model of brand choice and purchase quantity price sensitivities many consumer decisions involve a discrete choice and a continuous outcome examples of such decisions are whether to own a home or rent one and how much to spend which brand of orange juice to buy and how many ounces to buy in cases like these the choice decision is typically modeled separately say using a logit model and the continuous outcomes modeled separately using regression analysis however the continuous outcomes may not be independent of the discrete choice and vice versa and modeling the two decisions independently can lead to inefficient choice parameter estimates and biased and inconsistent regression parameter estimates in this paper we present a methodology from the limited dependent variable literature to model the dependence between the choice and quantity decisions our substantive interest is in the role of price in the choice and quantity decisions when choosing among alternatives we argue that consumers consider prices of all the competitive brands in the quantity decision on the other hand only the price of the chosen alternative is expected to impact how much of the alternative is purchased the analysis of three brands using disaggregate level panel data strongly supports our hypothesis about the role of competitive prices in the choice and quantity decisions

the impact of climate change on demand of ski tourism a simulation study based on stated preferences abstract climate change will affect tourism as one of the sectors most dependent on natural resources due to the strong dependency of many peripheral areas on tourism climate change has the potential to destabilize regional economies the objective of this paper is to assess the impacts of climate change on ski tourism demand a tourist survey n 1957 with a choice experiment conducted in 53 ski areas in austria provides the data for our analyses results show that snow is the most important factor for destination choice nevertheless preferences of respondents are heterogeneous measures that enhance price performance ratio i e lowering lift ticket prices and avoiding crowding turn out to be the most suitable compensation for suboptimal snow conditions as long as substitute ski areas with better snow conditions exist destinations with marginal snow conditions are likely to face severe demand losses up to 60 nevertheless dynamic pricing has the potential to compensate medium snow reliability if all destinations are affected by deteriorating snow conditions total demand reduces by 64 if snow reliability is low if these conditions and effects are limited to the beginning and the end of the ski season demand is projected to decline by 18

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

a theory of channel price promotions manufacturers can stimulate sales by a temporary wholesale price reduction for the retailer a rebate directed toward consumers or a combination of both the trade offs between these price promotions are analyzed providing insights about their roles profitability and welfare properties retailers rebates are also studied while price discrimination is a common explanation for rebates to consumers when a product is sold through a distribution channel the manufacturer may also use rebates to motivate retail participation in the promotion this explains why rebates may be offered even when all consumers use them and price discrimination does not occur copyright 1991 by american economic association

the existence of mixed strategy equilibria in a price setting oligopoly with convex costs this paper shows that a mixed strategy equilibrium will exist in an industry producing a homogeneous product with perfectly informed consumers if firms are identical and have weakly convex costs this generalises an earlier result by dasgupta and maskin

loss leader pricing and rain check policy loss leader pricing and rain check policies are common in retail markets yet research on these topics is surprisingly scarce in this paper we study the effects of leader pricing and rain check policy on stores profits and market outcomes suppose stores can accurately predict demand might they still run out of stock we investigate whether such a result is plausible when stores can offer rain checks the paper also helps resolve an issue that has recently attracted much attention should the ftc repeal its rule prohibiting stock outs of advertised sale items

pricing and promotions in asymmetric duopolies this paper develops a modeling framework for making promotions decisions in contrast to some of the prior research the framework explicitly models promotions its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first followed by the choice of promotion depths and frequencies it is used to illustrate the nature of competition between a national brand and private label in equilibrium the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand moreover the private label does not promote this equilibrium is also contrasted with varian s framework used by other researchers in which mixed strategy equilibrium prices are interpreted as promotions

theoretical models of sales promotions contributions limitations and a future research agenda our objective in this paper is to review theoretical models of sales promotions we highlight the key contributions of these models discuss their limitations and outline an agenda for future research managerial questions examined in these models include some very fundamental issues such as why firms resort to the use of sales promotions in mature markets and why the use of sales promotions has increased dramatically during the last two decades also included in this review are models that address firm level strategic issues such as the allocation of dollars between advertising and sales promotions and the relative emphasis on trade promotions vis a vis consumer promotions we also review theoretical models that explain how consumers respond to price promotions and what type of sales promotion tools may be superior to others in a particular market the review concludes with a possible agenda for future research

dealing temporary price cuts by seller as a buyer discrimination mechanism this paper is concerned with temporary price cuts deals sales and specials as a mechanism for the seller to price discriminate between buyers with different intensities of demand we analyze why a seller offers such price cuts which buyers take advantage of them and what the parameters are that determine the amount and frequency of the discount offered in the remainder of this section we briefly review the literature on price deals 1 in section ii simple models of buyer and seller behavior are developed and we show why and how a seller adopts a dealing strategy section iii summarizes the key implications of the model and indicates how the price discrimination hypothesis could be tested in practice section iv suggests possible extensions of the model finally section v gives our conclusions in the marketing literature the issue of who is deal prone has been extensively researched an explanation for temporary price cuts usually called deals sales or specials is provided we hypothesize that they are a mechanism that discriminates between more intense and less intense demanders we further hypothesize a positive relationship between demand elasticity and holding costs buyers with more intense demand with high holding costs are those who will be buying the product at its regular price the low holdingcost buyers take advantage of deals by forward buying the model is applicable to three relationships 1 manufacturer reseller where the reseller may be a wholesaler or a retailer 2 resellerreseller for example wholesaler retailer and 3 retailer consumer we are grateful to michael mussa and albert madansky for their comments we also benefited from comments made by the marketing faculty of the wharton school at a seminar where an earlier version of this paper was presented neil beckwith in particular is acknowledged 1 for a more detailed review of deals and similar pricecutting mechanisms e g mail in rebates cents off labels coupons etc see narsimhan 1982 chan 2 journal of business 1985 vol 58 no 3 1985 by the university of chicago all rights reserved 0021 9398185 5803 0004 01 50

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

effects of price promotions on variety seeking and reinforcement behavior a stochastic model is proposed to examine how changes in frequency of price discounts affect brand choice decisions of consumers who exhibit variety seeking and reinforcement behavior it is shown that the effect on choice depends on whether the brand offering discounts is a major or minor brand in the product category this model extends the existing literature on stochastic models of variety seeking behavior by explicitly incorporating switching due to promotions along with intrinsic switching due to variety seeking the model yields testable hypotheses which are supported in a laboratory experiment and on analyses of the iri cracker data