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Do promotions advertise lower price brands?

Authors Wathieu, Luc
Bronnenberg, Bart J.
Issue Date 1996-04
Summary How do preferences evolve after a promotion? Recent literature predicts a negative effect of price promotions on repeat purchasing for a variety of reasons. This paper offers a new theoretical argument and empirical evidence which both indicate that carry-over effects of promotions are asymmetric depending on the regular price of the promoting brand. In the process of offering and retracting a promotion, lower priced brands are able to retain their loyal customers and to attract new loyal customers. In contrast, expensive brands tend to lose their loyal customers in favor of lower price brands, and consumers who are attracted by a price promotion on expensive brands are inclined to revert to their previous choice upon retraction. These predictions are generated in a simple model of multi-attribute utility under reference-dependence and loss aversion that generally implies an increase in revealed price sensitivity after a promotional purchase. The empirical analysis makes use of scanner data from the chilled orange juice and the peanut butter categories. Managerial implications regarding competition between national brands and store brands are outlined.
Language English
Format Working paper
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