The Long-Term Effects of Price Promotions on Category Incidence, Brand Choice, and Purchase Quantity

Abstract

To what extent do price promotions have a long-term effect on the components of brand sales, namely, category incidence, brand choice, and purchase quantity? The authors answer this question by using persistence modeling on weekly sales data of a perishable and a storable product derived from a scanner panel. Their analysis reveals, first, that permanent promotion effects are virtually absent for each sales component. Next, the authors develop and apply an impulse response approach to estimate the promotional adjustment period and the total dynamic effects of a price promotion. Specifically, they calculate the long-term equivalent of Gupta's (1988) 14/84/2 breakdown of promotional effects. Because of positive adjustment effects for incidence but negative adjustment effects for choice, the authors find a reversal of the importance of category incidence and brand choice: 66/11/23 for the storable product and 58/39/3 for the perishable product. The authors discuss the implications of the findings and suggest some areas for further research.