Abstract

Price promotions are found to positively influence a retailer’s performance by increasing store traffic and the sales of non-promoted products/categories. On the other hand, price promotions are often downvoted for sacrificing the sales of high-margin substitution categories/products, inducing price searching behavior, and lowering customers’ reference prices. So far, one important dimension of price promotion: promotion scope, receives little attention from literature. Our research aims at exploring the effect of promotion scope from a retailer’s perspective. The main research question is: How does price promotion scope influence a retailer’s performance?

In this study, we test a series of hypotheses using both scanner data modelling and lab experiments. We find that increasing promotion scope leads to higher store traffic/choice. In addition, we investigate how the promotional effect is influenced by store characteristics and consumer shopping motivations. With a combination of econometrics modelling and experimental studies, we explained how can price incentives influence a retailer’s performance and why so. These findings are not only theoretically important to literature but also appealing to managers. Outcome from this research project can help the practitioners to improve strategical decisions because it uncovers new insights on consumer responses to marketing actions.