PRICE SENSITIVITY AND BRAND SWITCHING
IRENE VONKEMAN | 26 JANUARY 2016
RESEARCH QUESTION
Is the magnitude of the brand switching effect on the sales bump affected by the level of price
sensitivity of the category? And does this differ for perceived brand tiers?
Moderator Effects:
KEY FINDINGS FROM THEORY
Overall price elasticity has increased over time (Bijmolt, et al. 2005).
Price promotion stimulate deal-to-deal purchasing, but decrease brand equity over time (Nijs et al., 2001; Blattberg et al., 1995).
Advertising has negative effects on the price sensitivity (Mela et a., 1997).
Separation promotion = promotion separate from its alternatives (Lemon & Nowlis, 2002).
Shoppers of high tier brands are brand sensitive, and weigh brand equity in the utility (Blattberg & Wisniewski,
CONCEPTUAL MODEL
Price Sensitivity of
the Category
Promotion
Type of Brand tier
METHODOLOGY
MODEL
Unit by unit – multiplicative sales model 6 categories
3 brands
DATA
2001-2005 sales data
Missing values for Tortilla & Carbonated Soft drinks
Dependent Variable
Sales (Units)
Independent Variables
Price index
Price – feature/display/end-of-the-aisle display Cross price index
Cross price – feature/display/end-of-the-aisle display Lag & Lead Price index
VALIDITY
Very high MAPE scores for both tortilla chips models
and mayonnaise low brand tier
Negative cross brand effects for Tortilla chips Frozen pizza is only to a small extent affected by
RESULTS
H1
Sign. cross brand variables:
Low tier 16/42 versus High tier 6/42
Cross Price supported by non-price promotion >
Cross Price
Hypothesis1 is approved
H2
Cross price elasticities for end-of-the-aisle
promotions:
insensitive < sensitive categories (2.284 < 3.756)
Hypothesis 2 is rejected
H1 Non-price promotion enhances a brand’s value, hence it increases the switching effect for consumers of low brand tiers to switch to higher brand tiers.
RESULTS
H3
To measure H3 brand is kept constant
Cross brand variables:
Low tier 9/24 vs. High tier 7/24
Greater cross brand effect for low tier brands
Hypothesis 3 is approved
RESULTS
Price Sensitive Categories
Paper towels Frozen pizza Tortilla chips
high low high low High low
Price Index NS. 1.726** NS. NS. -1.603*** -2.100***
Price Feature M NS. NS. NS. NS. -1.413** NS.
Price Aisle NS. 3.756** NA. NA. NS. NS.
Price Insensitive Categories
Peanut butter Mayonnaise Carbonated soft drinks
high low high low High low
Price Index .806*** 1.119*** NS. .688*** NS. NS.
Price Feature M NS. 1.274** NS. NS. .731*** NS.
Price Feature L NS. NS. .700** NS. NS. 1.216**ⁱ
Price Aisle NS. 2.284*** .617** .878** NS. NS.
Price Feature L*
Price Aisle NA. NA. .988*ⁱ NA. NA. NA.
RESULTS
H4
Sign. cross brand variables:
insensitive 19/47 vs. sensitive 9/28
insensitive < sensitive
Sensitive categories have inconsistent results Hypothesis 4 is inconclusive (rejected)
H5
To measure H5 brand is kept constant
Cross brand effects on high tier brands
insensitive > sensitive
Hypothesis 5 is rejected
H4 The magnitude of brand switching is larger in categories characterized by high price sensitivity than in categories characterized by price insensitivity.
IMPLICATIONS
Brand switchers are mostly shoppers of Low tier brands
Loyalty is more important than expected primary promotion effects
No effect of price sensitivity categories more alike, all sensitive to competitive effects
Managers should consider alternative promotion strategies
Invest in (maintaining the level of) brand equity and brand loyalty
LIMITATIONS
Limited data
No direct effect of non-price promotion instruments
