Determinants of Store-Level Price Elasticity

Abstract

Using weekly scanner data representing 18 product categories, the authors estimated store-specific price elasticities for a chain of 83 supermarkets. They related these price sensitivities to a comprehensive set of demographic and competitor variables that described the trading areas of each of the stores. Despite the inability of previous research to find much of a relationship between consumer characteristics and price sensitivity, 11 demographic and competitive variables explain on average 67% of the variation in price response. Moreover, the authors found that the consumer demographic variables are much more influential than competitive variables. Their findings open the possibility for more effective everyday and promotional pricing strategies that exploit store-level differences in price sensitivity.