Article ID: | iaor1990468 |
Country: | United States |
Volume: | 36 |
Issue: | 3 |
Start Page Number: | 1 |
End Page Number: | 7 |
Publication Date: | Mar 1990 |
Journal: | Management Science |
Authors: | Srinivasan V., Raju Jagmohan S., Lal Rajiv. |
This paper analyzes the role played by brand loyalty in determining optimal price promotional strategies used by firms in a competitive setting. (Loyality is operationalized as the minimum price differential needed before consumers who perfer one brand switch to another brand.) The present objective is to examine how loyalties toward the competing brands influence whether or not firms would use price promotions in a product category. The authors also examine how loyalty differences lead to variations in the depth and frequency with which price discounts are offered across brands in the same product category. The analysis predicts that a brands’ likelihood of using price promotions increases with an increase in the number of competing brands in a product category. In the context of a market in which a brand with a large brand loyalty competes with a brand with a low brand loyalty, it is shown that in equilibrium, the