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The Impact of Price Promotions on Producer Strategies in Markets With Large Product Heterogeneity
Author(s) -
Panzone Luca,
Tiffin Richard
Publication year - 2012
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/agr.21309
Subject(s) - econlit , portfolio , product (mathematics) , economics , competition (biology) , marketing , product differentiation , business , sustainability , microeconomics , industrial organization , financial economics , ecology , geometry , mathematics , medline , cournot competition , political science , law , biology
Although current research indicates that increasing the number of options has negative effects on the cognitive ability of consumers, little understanding has been given to the consequences on producers and their strategic behavior. This article tests whether a large portfolio of products is beneficial to producers by observing UK consumer response to price promotions. The article shows that discounts induce mainly segment switching (74% of the total impact), with a limited effect on stockpiling (26%) and no impact on purchase incidence. Consequently, consumers prefer to “follow the discount” rather than purchase multiple units of the same wine. This result seems to explain the current structure of the market, and suggests that discounts may conflict with segment loyalty, a situation that disfavors producers, particularly in very populated segments. Results also casts doubts on the economic sustainability of competition based on an intense product differentiation in the wine sector. [EconLit Citations: C010, D120, M310].