Sanjay K. Dhar

Effective category management depends on the role of the category

Abstract Assessing a retailer’s performance in a category is important to both manufacturers and retailers. Based on data from 19 food categories sold in 106 major supermarket chains operating in the largest 50 retail markets in the U.S., the work reported in this article uses an analysis of variations in category performance across retailers to infer the key drivers of effective category management and how those drivers depend on the role the category plays in the overall retail portfolio. Not surprisingly, the best performing retailers: (a) offer broader assortments, (b) have strong private label programs, (c) charge significantly lower everyday prices, and (d) use feature advertising to drive store traffic and display to increase in-store purchases. More interestingly, we find systematic differences in the impact of the price, promotion and assortment variables that depend importantly on the role (staple, variety enhancers, niche, or fill-in) that the particular category plays in the store’s overall portfolio.

The effect of competitive advertising interference on sales for packaged goods

Competitive advertising interference can occur when viewers of advertising for a focal brand are also exposed to advertising messages for competing brands within a short period (e.g., one week for television advertising). Although competitive advertising interference has been shown to reduce advertising recall and recognition and brand evaluation measures, no studies have examined its impact on brand sales. In this research, the authors use a market response model of sales for two grocery categories for a large grocery chain in the Chicago area to study the extent to which competitive advertising interference influences sales. The model enables the authors to capture the “pure” own-brand advertising elasticities that would arise if there were no competitive interference. The results show that competitive interference effects on sales are strong. When one or more competing brands advertise in the same week as the focal brand, the advertising elasticity diminishes for the focal brand. The decrease depends on the number of competing brands advertising in a particular week and their total advertising volume. The authors find that having one more competitor advertise is often more harmful to a focal brands advertising effectiveness than if the current number of advertising brands increase their total advertising volume.

Brand history, geography and the persistence of brand shares

We document evidence of a persistent “early entry” advantage for brands in 34 consumer packaged goods industries across the 50 largest U.S. cities. Current market shares are higher in markets closest to a brand’s historic city of origin than in those farthest. For six industries, we know the order of entry among the top brands in each of the markets. We find an early entry effect on a brand’s current market share and perceived quality across U.S. cities. The magnitude of this effect typically drives the rank order of market shares and perceived quality levels across cities.

The Role of Retail Competition, Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity

We study the determinants of sensitivity to the promotional activities of temporary price reductions, displays, and feature advertisements. Both the theoretical and empirical literatures on price promotions suggest that retailer competition and the demographic composition of the shopping population should be linked to response to temporary price cuts. However, datasets that span different market areas have not been used to study the role of retail competition in determining price sensitivity. Moreover, little is known about the determinants of display and feature response. Very little attention has been focused on retailer strategic decisions such as price format (EDLP vs. Hi-Lo) or size of stores. We assemble a unique dataset with all U.S. markets and all major retail grocery chains represented in order to investigate the role of retail competition, account retail strategy, and demographics in determining promotional response. Previous work has not simultaneously modeled response to price, display, and feature promotions, which we do in a Bayesian Hierarchical model. We also allow for retailers in the same market to have correlated sales response equations through a variance component specification. Our results indicate that retail strategic variables such as price format are the most important determinants of promotional response, followed by demographic variables. Surprisingly, we find that variables measuring the extent of retail competition are not important in explaining promotional response.

Competitive Consequences of Using a Category Captain

Many retailers designate one national brand manufacturer in each product category as a “category captain” to help manage the entire category. A category captain may perform demand-enhancing services such as better shelf arrangements, shelf-space management, and design and management of in-store displays. In this paper, we examine when and why a retailer may engage one manufacturer exclusively as a category captain to provide such service and the implications. We find that demand substitutability of competing brands gives rise to a service efficiency effect---service that expands the category is more effective in increasing a manufacturers sales and margin than service that shifts demand from a rivals brand. We show that the service efficiency effect may motivate a category captain to provide a service that benefits all brands in the category even though doing so is more costly. We further show that, in categories that are less price competitive, there is higher competition between manufacturers to become the category captain. Consequently, a retailer may obtain better service by using a category captain than by engaging both manufacturers simultaneously. Our findings may help explain why a retailer may rely on a category captain despite concerns regarding opportunism and why there is limited empirical evidence of harm to rival manufacturers.

The Effect of Sales Promotions on the Size and Composition of the Shopping Basket: Regulatory Compatibility from Framing and Temporal Restrictions

Most literature on sales promotions focuses on responses to the promoted brand. Across two experimental studies and one field study, the authors examine how sales promotions may affect the size and composition of the overall shopping basket. The authors show that the framing of the savings message on sales promotions (e.g., “Save

Brand Promotions as a Lottery

x” versus “Get

Market Structure and the Geographic Distribution of Brand Shares in Consumer Package Goods Industries

x Off”), the expiration date restriction cue (immediate versus future expiration), and the familiarity of brands (well-known versus less familiar) are independent primes of regulatory focus. Furthermore, such cues, when compatible with one another or with a prior regulatory focus, lead to more unrelated purchases in the store. The authors discuss the findings in the context of theory on regulatory relevance and mind-sets, and they posit managerial implications for the design of sales promotions and store positioning.

A Note on the Relationship between Firm Diversification and Corporate Advertising Expenditures

This paper shows that imprecisely stated discounts in brand promotions offered in the form of a low-probability lottery can lead to higher sales (purchase intentions) and consequently profits than equally costly conventional promotions offering a precise discount on the entire stock. Results from two different experimental studies support our findings. For high-probability lottery-like promotions, imprecise discounts lead to a lower performance for the brand than conventional promotions. We attempt to explain the findings by drawing on the behavioral decision theory literature.

Food Purchases During the Great Recession

We describe industrial market structure using a unique database spanning 31 consumer package goods (CPG) industries, 39 months, and the 50 largest US metropolitan markets. We organize our description of market structure around the notion that firms can improve brand perceptions through advertising investments, as in Suttons endogenous sunk cost theory. In the data, observed advertising levels escalate (i.e. larger brands) in larger markets while the number of advertised brands within an industry remains stable. Correspondingly, observed concentration levels in advertising-intensive industries are bounded away from zero irrespective of market size. For two industries, we collect historic order-of-entry data. The geographic distribution of entry is found to account for the levels, rank-orders and covariation in the geographic distribution of brand shares, perceived brand qualities and advertising effort. Interestingly, alternative potential sources of geographic asymmetry on both the supply and demand sides do not mimic the geographic patterns of shares. In general, our findings highlight several striking persistent geographic patterns in the industrial market structures of CPG industries.