Long-run effects of promotion depth on new versus established customers: three field studies

Long-run effects of promotion depth on new versus established customers: three field studies

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Article ID: iaor20061580
Country: United States
Volume: 23
Issue: 1
Start Page Number: 4
End Page Number: 20
Publication Date: Dec 2004
Journal: Marketing Science
Authors: ,
Keywords: retailing
Abstract:

We use the results of three large-scale field experiments to investigate how the depth of a current price promotion affects future purchasing of first-time and established customers. While most previous studies have focused on packaged goods sold in grocery stores, we consider durable goods sold through a direct mail catalog. The findings reveal different effects for first-time and established customers. Deeper price discounts in the current period increased future purchases by first-time customers (a positive long-run effect) but reduced future purchases by established customers (a negative long-run effect). Overall, the results show evidence of several long-run effects: forward buying, selection, customer learning, and increased deal sensitivity. Short-run metrics that ignore these effects overstate the overall change in demand for established customers. The implication is that if prices are set based on short-run elasticity, then they will be too low. Among first-time customers, the short-run metrics underestimate the total increase in demand. If prices are set based on short-run elasticity, then they will be too high.

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