An Examination of Stockpiling Behavior in Response to Price Deals (1998)

INTRODUCTION There is evidence that price deals can cause dramatic short-term increases in the sales of consumer nondurables (e.g., Guadagni and Little, 1983; Blattberg et al., 1981). One potential cause of the spike in sales during promotional periods is stockpiling. That is, a price deal may cause consumers to buy larger than normal quantities of a product. The phenomenon of stockpiling is important to both retailers and manufacturers. One concern is that consumers, by purchasing larger quantities, may simply be loading up on a brand that they would have bought at its regular price. However, stockpiling may also be beneficial if it leads to an increase in consumers' consumption rates or if it prevents or delays consumers from switching to competitors' brands. A number of studies, using a number of different types of products and promotions, have examined the phenomenon of stockpiling (e.g., Gupta, 1988, 1991; Schneider and Currim, 1990; Krishna and Shoemaker, 1992). Most studies have found that stockpiling occurs, however, frequently the evidence has been quite weak (e.g. Neslin et al., 1985; Gupta, 1988, 1991). Moreover, some studies, particularly those using store-level sales data, have not found the effect of stockpiling on store sales to be large enough to be noticeable (e.g., Walters and Rinne, 1986; Moriarty, 1985). Apart from the finding that stockpiling exists, very little can be said with confidence about the phenomenon. The purpose of this study is to increase our understanding of the phenomenon of stockpiling. Specifically, using household-level grocery purchase data, the study examines the impact of household characteristics, product-related factors, and purchase environment characteristics on the incidence of stockpiling in four product categories. The study uses a rather strict definition of stockpiling--a purchase quantity on a deal purchase occasion that is greater than the largest quantity purchased by the household on any non-deal purchase occasion during a 70-week period. CONCEPTUAL FRAMEWORK/HYPOTHESES The cost-benefit framework of the household inventory model (Blattberg et al., 1978, 1981; Jeuland and Narasimhan, 1985, Krishna, 1994) provides a theoretical foundation that can be used to link household characteristics and other factors to stockpiling behavior. The household inventory model proposes that households seek to meet their demand for products while at the same time minimizing their total costs. These costs which households seek to minimize might include ordering costs, holding/storage costs, stock-out costs, promotion search costs (e.g., the costs of scanning newspapers for coupons and advertised price specials, cutting and sorting coupons etc.), brand substitution costs (i.e., the costs of purchasing less-preferred brands), and future ordering costs (Bawa and Shoemaker, 1987; Schneider and Currim, 1990; Krishna et al., 1991). The conceptual framework of the inventory model can be used to derive hypotheses regarding the impact of household, product-related, and situational factors on the incidence of stockpiling. The implied causal structure is that these household, product-related and situational factors affect one or more components of a household's purchasing costs, which in turn affect the purchase quantity decision (see Figure 1 for a summary of the hypothesized factors). Household Characteristics: Deal Proneness, Brand Loyalty, and Consumption Rate The incidence of stockpiling may be affected by the extent to which households search for deals (Schneider and Currim, 1990). Households that search for deals incur search costs (i.e., the cost of time spent scanning advertisements and in-store displays). In order to help allay these costs, these households may be more likely to want to receive the financial and perhaps psychological benefits derived from stockpiling a product. Also, consumers incur substitution costs when they purchase less-preferred brands when they are on sale. …