Kusum L. Ailawadi

Pursuing the Value-Conscious Consumer: Store Brands Versus National Brand Promotions

The objective of this article is to determine whether national brand promotions and store brands attract the same value-conscious consumers, which would aggravate channel conflict between manufacturers and retailers. The authors identify psychographic and demographic traits that potentially drive usage of store brands and national brand promotions. They then develop a framework and structural equation model to study the association of these traits with store brand and national brand promotion usage. The authors find that though demographics do not influence these behaviors directly, they have significant associations with psychographic characteristics and therefore are useful for market targeting. Most important, usage of store brands and usage of promotions, particularly out-of-store promotions, are associated with different psychographics. Store brand use correlates mainly with traits related to economic benefits and costs, whereas the use of out-of-store promotions is associated mainly with traits related to hedonic benefits and costs. These differences result in four well-defined and identifiable consumer segments: deal-focused consumers, store brand–focused consumers, deal and store brand users (use-all), and nonusers of both store brands and deals (use-none). Therefore, manufacturers and retailers have the opportunity to either avoid each other or compete head to head, depending on which segment they target.

Revenue Premium as an Outcome Measure of Brand Equity

The authors propose that the revenue premium a brand generates compared with that of a private label product is a simple, objective, and managerially useful product-market measure of brand equity. The authors provide the conceptual basis for the measure, compute it for brands in several packaged goods categories, and test its validity. The empirical analysis shows that the measure is reliable and reflects real changes in brand health over time. It correlates well with other equity measures, and the measures association with a brands advertising and promotion activity, price sensitivity, and perceived category risk is consistent with theory.

An Empirical Analysis of the Determinants of Retail Margins: The Role of Store-Brand Share

The authors develop and test a model of the key determinants of margins that retailers earn on national brands and store brands. They particularly focus on the impact of store-brand share on percentage margin, dollar margin per unit, and total dollar margin of the retailer. The authors find not only that percentage retail margins on store brands are higher than on national brands but also that high store-brand share enables retailers to earn higher percentage margins on national brands. However, the dollar margin per unit may be smaller for store brands because of their lower retail price. Furthermore, heavy store-brand users contribute much less to the total dollar profit of the retailer than do light store-brand users. The authors conclude that it is important for retailers to retain a balance between store brands and national brands to attract and retain the most profitable customers.

The retail power-performance conundrum

Abstract The conventional wisdom that retailers have grown more powerful relative to packaged goods manufacturers in the packaged goods industry has not been supported by empirical analyses of the relative profitability of retailers and manufacturers. This is despite increases in trade and consumer promotion, and the prevalence of store brands, all of which were viewed as indicators of growing retail power. In recent years, researchers have developed a much better understanding of the role that these purported “indicators” play in manufacturer-retailer interaction. The objective of this article is to synthesize what this new research teaches us about the impact of promotions and store brands on the relative performance of manufacturers and retailers. It concludes that promotions are just as beneficial for manufacturers as for retailers, if not more so. Store brands do provide leverage to retailers and allow them to improve margins, but a competitive national brand assortment is still necessary for retail profitability. This helps explain why manufacturer profitability has not worsened relative to retailers even as trade and consumer promotion spending have grown and store brands have become strong in many product categories.

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

Much research has focused on how consumers and competitors respond to short-term changes in advertising and promotion. In contrast, the authors use Procter & Gambles (P&Gs) 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 competitors market share is affected by the change in marketing mix and the competitors 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.

Market Power and Performance: A Cross-Industry Analysis of Manufacturers and Retailers

Abstract Two recent studies of manufacturer and retailer profitability in the food industry have raised questions about whether the widely cited, but empirically untested, shift of power from manufacturers to retailers has really occurred. Has the marketing community been operating under a misconception or are these studies flawed? This paper uses more complete measures of exercised and potential market power and a broader sample of industries and retail classes to address this critical question. Not only do our measures have strong theoretical grounding in the industrial organization, finance and accounting literature, they incorporate in them the impact of actions that have been commonly cited as illustrations of a power shift. Our analysis of 14 consumer good industries shows that only a few of them exhibit a shift in market power towards retailers. Further this apparent shift is highly influenced by a small number of retailers within a single retail class.

Heterogeneity and purchase event feedback in choice models: An empirical analysis with implications for model building

Abstract This paper evaluates empirically the most commonly used methods of incorporating heterogeneity and purchase event feedback in choice models. We evaluate each method with respect to model fit, forecast accuracy, differences in estimated marketing mix response, and stability of estimated market segments. Our general findings are that (a) feedback and preference heterogeneity contribute substantially to fit and forecast accuracy; response heterogeneity improves upon this but not substantially; (b) estimated response parameters vary significantly across methods, but the corresponding elasticities do not; and (c) large segments are fairly stable in their preference and elasticity structures but small segments are much less so. Our comparison of specific methods suggests that, if researchers wish to use feedback and heterogeneity as controls for forecasting purposes or for estimating marketing mix response, BLOY, a smoothed measure of previous purchases, may be used in conjunction with a simple preference heterogeneity measure. If researchers wish to study heterogeneity and feedback per se, they should use a relatively complex heterogeneity method such as a finite mixture model, but they must make a trade-off between BLOY and a simple last-purchase indicator variable (LAST). BLOY provides a better fit but yields less stable market segments. LAST yields poorer fit but the market segments are more stable.

Decomposition of the Sales Impact of Promotion-Induced Stockpiling

Promotion-induced consumer stockpiling has a negative impact on manufacturers because it moves forward in time brand sales that would have occurred later at full margin. However, the resultant increase in consumer inventory has two potential benefits: increased category consumption and preemptive brand switches (the additional inventory of the promoted brand preempts the consumers purchase of a competing brand in the future). Furthermore, there is a potential impact on repeat purchases of the stockpiled brand after the promotion. In this article, the authors present a model and simulation-based method to measure the benefits and costs of stockpiling and assess their relative magnitudes. They find that the benefits are substantial, but consumption appears to be the most important, followed by preemptive switching and then an increase in repeat purchases. These benefits easily offset the negative aspect of consumer stockpiling—namely, purchase acceleration by loyal customers who would have bought the brand at regular price at a later date.

Findings---Retailer Promotion Pass-Through: A Measure, Its Magnitude, and Its Determinants

We use data on all manufacturer funding and promotion activity by a major U.S. retailer during a two-year period to compute promotion pass-through and assess its magnitude. Then, we estimate a two-tiered probit and lognormal regression model to study drivers of the large variation we observe in pass-through rates. Although our analysis is based on data from a single retailer, it provides a much more complete picture of the magnitude and variability of pass-through than has been available to date. Some key insights from our work are as follows. First, the retailer passes through more than 100% of the total manufacturer funding it receives in aggregate, but the median pass-through rate for individual manufacturers is much lower than 100%. Second, some manufacturers are promoted even without funding. This is more likely for private label and high-share manufacturers in high-lift and high-margin categories. Third, a small number of manufacturer and category characteristics explain a significant amount of the variation in pass-through. In particular, pass-through is higher for private label. It increases with the share of the manufacturer in the focal category but also with the sales of that manufacturer in other categories. Categories with high sales, high promotion lift, low concentration, and low margin get more pass-through. We corroborate some recent conclusions in the literature, e.g., that some pass-through rates are much higher than 100% and that high-share manufacturers get more pass-through. We add several new insights, e.g., on the magnitude of aggregate pass-through, on cross-pass-through across and within categories, on pass-through for private label, and on the category drivers of pass-through.

Soda Versus Cereal and Sugar Versus Fat: Drivers of Healthful Food Intake and the Impact of Diabetes Diagnosis

This study examines how household members’ personal characteristics and key marketing factors affect the healthfulness of food purchased for in-home consumption; it further considers how food intake changes following a diagnosis of Type 2 diabetes in the household. Using a combination of grocery purchases over four years, survey data about health status, and the nutrition content of 13 of the largest packaged food categories, this study shows that households with higher education and nutrition interest consume fewer calories, sugar, and total carbohydrates, whereas those with higher self-control consume more, because they offset their lower intake of “unhealthy” categories (e.g., soft drinks) with higher intake of “healthy” categories (e.g., cereal). The consumption of sugar and carbohydrates decreases significantly in response to a diabetes diagnosis, whereas the intake of fat and sodium increases. Education, nutrition interest, and self-control are not associated with healthier changes in response to a diagnosis, but younger and higher-income households, as well as those in which the diabetes patient is female, make healthier changes. These findings have notable implications for marketers, consumers, consumer researchers, and public health professionals.