Measuring the effects of a price promotion

Abstract

Econometric research in marketing has considerable potential in reducing the uncertainty about the nature of market response. However, the development of marketing generalizations about the effects of marketing variable changes on market response has been slow due to the often inconsistent and fragmentary nature of market response studies.

The literature identified what marketing variables should be included in a market response study and how these variables should be measured. This dissertation measured the marketing variable main effects, interaction effects and competitive effects of a price promotion campaign on the market shares of frequently purchased branded goods in the yellow fats market. A linear current effects model was estimated by a seemingly unrelated regression technique to measure these marketing variable effects. Marketing variable elasticities were calculated.

The results lead to the conclusion that a price promotion campaign in the short-term will increase the market share of the promoted brand whilst decreasing the market shares of the competing brands. The effects of marketing variable changes on market shares was also found to differ among the brands. Furthermore, the results showed interactive effects to be among the significant determinants of brand market share.

Models of this type have the potential to be used by the manufacturer and/or the retailer to evaluate the financial implications of implementing a brand price promotion strategy.