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Asymmetric promotion effects and brand positioning

Authors Bronnenberg, Bart J.
Wathieu, Luc
Issue Date 1996-01
Summary This paper formally examines the effects of brand positioning along price and quality dimensions on promotion effectiveness. We use a multi-attribute utility framework, where utility is characterized by reference-dependence and loss aversion. A major result in existent promotion research is that promotions yield more response for higher quality brands than for lower quality brands. Our work shows (both theoretically and empirically) that this result depends on whether the quality difference is sufficiently large in comparison with the regular price difference. If the latter is not the case, the asymmetry may vanish or reverse with lower quality brands being more responsive to promotions than higher quality brands. Our analysis further brings to light two orthogonal components of brand positioning, named "positioning advantage" and "brand distance". Using scanner data, it is shown that these are accurate predictors of promotion effectiveness and promotion asymmetry. Finally, we suggest that sales promotions of store brands are likely to become increasely successful, since we provide secondary evidence that retailers are narrowing the quality gap between store brands and national brands, while maintaining substantial price differences.
Language English
Format Working paper
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