Market Response to a Major Policy Change in the Marketing Mix: Learning from Procter & Gamble's Value Pricing Strategy

Abstract

Much research has focused on how consumers and competitors respond to short-term changes in advertising and promotion. In contrast, the authors use Procter & Gamble's (P&G's) value pricing strategy as an opportunity to study consumer and competitor response to a major, sustained change in marketing-mix strategy. They compile data across 24 categories in which P&G has a significant market share, covering the period from 1990 to 1996, during which P&G instituted major cuts in deals and coupons and substantial increases in advertising. The authors estimate an econometric model to trace how consumers and competitors react to such changes. For the average brand, the authors find that deals and coupons increase market penetration and surprisingly have little impact on customer retention as measured by share-of-category requirements and category usage. For the average brand, advertising works primarily by increasing penetration, but its effect is weaker than that of promotion. The authors find that competitor response is related to how strongly the competitor's market share is affected by the change in marketing mix and the competitor's own response and to structural factors such as market share position and multi-market contact. The net impact of these consumer and competitor responses is a decrease in market share for the company that institutes sustained decreases in promotion coupled with increases in advertising.