A Nested Logit Model of Strategic Promotion

Retailers use sales "price promotions" for a number of potential reasons. There is relatively little research, however, on their strategic role among frequently consumed perishable products. Using a two-stage, nested logit model of retail equilibrium, we show that promotion will be most effective (ie. increase store-level sales) if products are highly differentiated, but stores are relatively similar. To test this hypothesis, we an oligopolistic model of promotion rivalry with category-level scanner data from the four largest supermarket retailers in a major U.S. metropolitan market. The results show that promotion has a greater impact on store share than product share, because the elasticity of substitution among stores is larger than the elasticity of substitution among products. Consequently, promotion has its greatest value in driving demand for differentiated products among stores that are similar. This finding supports the observed trend toward premium private label products being offered by supermarket retailers.Research Methods/ Statistical Methods,

Short-Term Forecasting of Passenger Demand under On-Demand Ride Services: A Spatio-Temporal Deep Learning Approach

Short-term passenger demand forecasting is of great importance to the on-demand ride service platform, which can incentivize vacant cars moving from over-supply regions to over-demand regions. The spatial dependences, temporal dependences, and exogenous dependences need to be considered simultaneously, however, which makes short-term passenger demand forecasting challenging. We propose a novel deep learning (DL) approach, named the fusion convolutional long short-term memory network (FCL-Net), to address these three dependences within one end-to-end learning architecture. The model is stacked and fused by multiple convolutional long short-term memory (LSTM) layers, standard LSTM layers, and convolutional layers. The fusion of convolutional techniques and the LSTM network enables the proposed DL approach to better capture the spatio-temporal characteristics and correlations of explanatory variables. A tailored spatially aggregated random forest is employed to rank the importance of the explanatory variables. The ranking is then used for feature selection. The proposed DL approach is applied to the short-term forecasting of passenger demand under an on-demand ride service platform in Hangzhou, China. Experimental results, validated on real-world data provided by DiDi Chuxing, show that the FCL-Net achieves better predictive performance than traditional approaches including both classical time-series prediction models and neural network based algorithms (e.g., artificial neural network and LSTM). This paper is one of the first DL studies to forecast the short-term passenger demand of an on-demand ride service platform by examining the spatio-temporal correlations.Comment: 39 pages, 10 figure

Do promotions benefit manufacturers, retailers or both ?.

While there has been strong managerial and academic interest in price promotions, much of the focus has been on the impact of such promotions on category sales, brand sales and brand choice. In contrast, little is known about the long-run impact of price promotions on manufacturer and retailer revenues and margins, although both marketing researchers and practitioners consider this a priority area (Marketing Science Institute 2000). Do promotions generate additional revenue and for whom? Which brand, category and market conditions influence promotional benefits and their allocation across manufacturers and retailers?To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues and margins. This investigation proceeds in two steps. First, persistence modeling reveals the short- and long-run effects of price promotions on these performance measures. Second, weighted least-squares analysis shows to what extent brand and promotion policies, as well as market-structure and category characteristics, influence promotional impact. A first major finding of our paper is that price promotions do not have permanent monetary effects for either party. Second, in terms of the cumulative, over-time, promotional impact on their revenues, we find significant differences between the manufacturer and retailer. Price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Retailer (category) margins, in contrast, are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands and for frequently promoted brands. Moreover, they are higher for storable products and lower in categories with a high degree of brand proliferation. Retailer revenue elasticities, in turn, are higher for brands with frequent and shallow promotions, for storable products and in categories with a low extent of brand proliferation. As such, from a revenue-generating point of view, manufacturer and retailer interests are often aligned in terms of which categories and brands to promote. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. Thus, the implications with respect to the frequency of promotions depend upon the performance measure the retailer chooses to emphasize. The paper discusses the managerial implications of our results for both manufacturers and retailers and suggests various avenues for future research.

Spatial Competition in Private Labels

Previous studies find that private labels increase retailers' bargaining power with manufacturers and allow retailers to price discriminate. We use a spatial discrete choice model to show that retailers also use store brands to create market power through store differentiation, but not as a means of building market share.Marketing,

Do Promotions Benefit Manufacturers, Retailers or Both?

While there has been strong managerial and academic interest in price promotions, much of the focus has been on the impact of such promotions on category sales, brand sales and brand choice. In contrast, little is known about the long-run impact of price promotions on manufacturer and retailer revenues and margins, although both marketing researchers and practitioners consider this a priority area (Marketing Science Institute 2000). Do promotions generate additional revenue and for whom? Which brand, category and market conditions influence promotional benefits and their allocation across manufacturers and retailers?To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues and margins. This investigation proceeds in two steps. First, persistence modeling reveals the short- and long-run effects of price promotions on these performance measures. Second, weighted least-squares analysis shows to what extent brand and promotion policies, as well as market-structure and category characteristics, influence promotional impact. A first major finding of our paper is that price promotions do not have permanent monetary effects for either party. Second, in terms of the cumulative, over-time, promotional impact on their revenues, we find significant differences between the manufacturer and retailer. Price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Retailer (category) margins, in contrast, are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands and for frequently promoted brands. Moreover, they are higher for storable products and lower in categories with a high degree of brand proliferation. Retailer revenue elasticities, in turn, are higher for brands with frequent and shallow promotions, for storable products and in categories with a low extent of brand proliferation. As such, from a revenue-generating point of view, manufacturer and retailer interests are often aligned in terms of which categories and brands to promote. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. Thus, the implications with respect to the frequency of promotions depend upon the performance measure the retailer chooses to emphasize. The paper discusses the managerial implications of our results for both manufacturers and retailers and suggests various avenues for future research.empirical generalizations;category management;long-term profitability;sales promotions;vector-autoregressive models

Vertical competition between manufacturers and retailers and upstream incentives to innovate and differentiate

Vertical competition, namely competition between retailers' store brands (or private labels) and manufacturers' brands has become a crucial factor of change of the competitive environment in several industries, particularly in the grocery and food industries. Despite the growing literature on the determinants of the phenomenon, one topic area regarding the impact of vertical competition on the upstream incentives to adopt non-price strategies such as product innovation as well as horizontal and vertical product differentiation has so far received little attention. An idea often put forward is that the increasing bargaining power of retailers and higher vertical competitive pressures can have negative effects on such incentives by lowering manufacturers' profits. On the other hand, there is a significant empirical evidence supporting the view that non-price strategies of product innovation and differentiation continue to play a key role and remain a crucial source of competitive advantages for several manufacturers. In this paper, we present a simple conceptual framework which allows us to focus on two hypotheses which interacting explain why the disincentive effects are not so obvious. The first hypothesis regards the existence of an inverse relationship between the strength of a given brand and the retail margin as suggested by Robert Steiner. Through a two-stage model in which manufacturers do not sell directly to final consumers and the retail industry is not perfectly competitive, Steiner argued persuasively that in such models leading brands in a product category yield lower retail margins than less strong brands. Retailers are forced to stock strong brands and therefore have relatively less bargaining power in negotiating wholesale prices. In addition, price competition among retailers is more intense on strong brands since consumers select these brands to form their perceptions of stores' price competitiveness and are ready to shift to lower price stores if retail price of these brands is not perceived as competitive. Thus, intensive intrabrand competitive pressures discipline retailers pricing policy on stronger manufacturer brands much more than on weaker brands. A key prediction of Steiner's two-stage model is that, since manufacturers' non-price strategies have a margin depressing impact which is additional to their direct demand - creating effect, manufacturers face greater incentives to invest in advertising and R&D. The second central hypothesis in our framework is that in a world of asymmetric brands and intense vertical competition there is a further mechanism at work due to retailers' delisting decisions. Given that retailers have to make room for their store brands at the point of sale, they have to readjust their assortments delisting some manufacturer brands. Retailers would like delisting strong brands given that the retailer's margin on these brands is lower. The problem is that strong brands can contrast vertical pressures better than weaker brands and cannot be delisted. In making shelf - space decisions, rational retailers will recognise that they can delist only the brands whose brand loyalty is lower than their store loyalty. On the contrary, retailers cannot delist brands for which brand loyalty is greater than store loyalty. This implies that manufacturer brands operate in a two- region environment. We call these two regions, respectively, the 'delisting' and 'no-delisting' region and show that the demarcation point between them is given by the level of retailer's store loyalty. By combining the Steiner's hypothesis with the mechanism of delisting, we argue that in a competitive environment characterized by vertical competition is at work a threshold effect which increases optimal 2 R&D and advertising expenditures. The intuition is that it is vital for manufacturers willing to remain sellers of branded products to keep brand loyalty of their brands at a level higher than retailer's store loyalty. And the only way to pursue this goal and avoid to be involved into the risk of being delisted is to boost brands. We also show that vertical competitive pressures are particularly strong on second- tier brands. A brief review of some recent patterns and stylised facts in the food industries and grocery channels consistent with these predictions conclude the paper.vertical competition, store brands, delisting, optimal advertising, Industrial Organization,

Holiday Price Rigidity and Cost of Price Adjustment

The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers’ questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and nonholiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.

Growing Shopping Malls and Behavior of Urban Shoppers

Shopping malls contribute to business more significantly than traditional markets which were viewed as simple convergence of supply and demand. Shopping malls attract buyers and sellers, and induce customers providing enough time to make choices as well as a recreational means of shopping. However, competition between malls, congestion of markets and traditional shopping centers has led mall developers and management to consider alternative methods to build excitement with customers. This study examines the impact of growing congestion of shopping mall in urban areas on shopping conveniences and shopping behavior. Based on the survey of urban shoppers, the study analyzes the cognitive attributes of the shoppers towards attractiveness of shopping malls and intensity of shopping. The results of the study reveal that ambiance of shopping malls, assortment of stores, sales promotions and comparative economic gains in the mall attract higher customer traffic to the malls.Shopping malls, traditional markets, sales promotion, market ambiance, leisure shopping, recreational services, retailing, market congestion, customer value, consumer behavior

Local Competition and Impact of Entry by a Dominant Retailer

This paper analyzes the competition between two spatially differentiated multi-product retailers who encounter entry from a dominant discount retailer. Our primary objective is to determine how entry affects the pricing and relative profits of the incumbent stores and the role played by the location of the entrant. The new entrant has partial overlap in product assortment with the incumbents and is assumed to have lower procurement costs for the common goods. Consumers are heterogeneous in their location, economic status (shopping costs and valuations), as well as purchase basket or the types of products demanded. Results show that in the post entry equilibrium, the prices for the products not offered by the discounter are higher than the pre entry prices. More interestingly, contrary to the conventional wisdom we find that the store that is closer to the new entrant is better off compared to the incumbent located further away. The intuition for these results is that the discounter with its low price draws away the poor consumers – the price sensitive segment – out of the market for the items it carries. This in turn softens price competition between the incumbents for these items. Furthermore, the new entrant’s unique product offering attracts more consumers to visit the location it occupies, which introduces positive demand externalities to the neighboring retailer, leading to an increase in sales for the non-competing products. We provide empirical evidence for our results and discuss implications for retailers facing competition from large discount stores.entry; retail competition; agglomeration