Evaluating Temporary Retail Price Discounts Using Semiparametric Regression

Abstract

Purpose - To analyze the impact of temporary retail price discount on a consumer goods product category using semiparametric regression and considering different promotional price discount characteristics as well as brand characteristics. Design/methodology/approach - A semiparametric regression model using Support Vector Machines, which aim to evaluate retailers' decisions about temporary price discounts, has been developed. The model is derived from the analysis of historical sales data, which provide precise evaluation of previous temporary price discounts periods. The model is also consistent with ample empirical evidence showing that historical retail sales data can be used to evaluate the impact of past promotions. Findings - Provides an estimation of the shape of the deal effect curve, indicating which temporary price discounts are more effective to increase sales and showing the existence of different threshold and saturation levels. Confirms that promotional price discounts accelerate sales especially during week ends. Evidences that promoting high-priced (high-quality) brands has a stronger impact on sales of low-priced (low-quality) brands than the reverse and that cross-price effects are stronger on the sales of brands with similar prices. Suggests the convenience of the use of the proposed semiparametric methodology to the study of the promotional effects considered. Research limitations/implications - It is not possible to generalize the modelled shapes of the deal effect curves. There is no information available on feature advertising nor displays. It is important to determine the generalizability of these results to the study of additional promotional effects. It would also be interesting to assume that the retailer's deal policy is exogenous. Originality/value - Provides a relevant tool to assess the set of price promotional periods by the grocery retailer. With a more precise and accurate knowledge about the performance of past temporary price cuts, retailers can implement more effective promotional periods.