The Indirect Impact of Price Deals on Households - Purchase Decisions Through the Formation of Expected Future Prices

Journal of Retailing (Impact Factor: 2.75). 08/2011; 88(1):88-101. DOI: 10.1016/j.jretai.2011.08.004


We examine the indirect impact of price deals, which occurs through the formation of expected future prices, on households’ purchase decisions. Two competing learning processes of households’ formation of expected future deals that lead to opposite predictions are proposed. Under a deal-probability learning process, a current deal on a brand raises households’ expectations of a deal on the same brand in the immediate future, while under a deal-timing learning process, a current deal on a brand lowers households’ expectations of a deal on the same brand. We embed each learning specification within a comprehensive econometric framework that simultaneously examines three purchase decisions – incidence, brand choice and quantity – at the household level, while explicitly correcting for two sources of selectivity bias in discrete quantity outcomes. We estimate the proposed model using scanner panel data on paper towels, and find that (1) the deal-probability learning process better describes how households incorporate the deal information into the formation of future price expectations compared to the deal-timing learning process; (2) the indirect impact of price deals is greater for brand-loyals than for brand-switchers; and (3) the indirect impact of price deals is greater for larger families, heavy users, less educated and less employed households, and infrequent shoppers. We also show that ignoring the indirect impact of price deals severely overstates the sales effects.

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Available from: Seethu Seetharaman, Oct 02, 2015
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    ABSTRACT: The global marketplace is continually shaped by changing realities, including the recent economic downturn and ever-increasing adoption of new technologies. The results of these changing realities affect every element of consumers’ shopping behavior, as well as their value perceptions. This article examines how recent changes in the environment and technology have spurred changes in how consumers perceive value, as well as in how retailers communicate their value offers. Furthermore, this introductory article highlights how the 14 contributions in this special issue of the Journal of Retailing on pricing relate to these areas of change.
    Journal of Retailing 03/2012; 88(1):1-6. DOI:10.1016/j.jretai.2011.12.001 · 2.75 Impact Factor