by Venkatesh Shankar and Ruth N. Bolton
This article was published in Marketing Science, 23 (Winter 2004), 28-49.
This paper empirically investigates the determinants of retailers’ pricing decisions with a focus on competitor factors. We classify the different types of pricing strategies based on four underlying dimensions. These dimensions are price consistency, price-promotion intensity, price-promotion coordination, and relative brand price. We develop and estimate a simultaneous equation model of how each of the underlying dimensions of retailers’ pricing strategies is influenced by variables representing the market, chain, store, category, brand, customer and competition. Our empirical analysis is based on optical scanner data that describe 1364 brand-store combinations from six categories of consumer packaged goods in fiveU.S.markets over a two year time period. The four underlying pricing dimensions are statistically related to: (1) competitor price and deal frequency (competitor factors), (2) storability and necessity (category factors), (3) chain positioning and size (chain factors), (4) store size and assortment (store factors), (5) brand preference and advertising (brand factors), and (6) own price and deal elasticities (customer factors). Competitor factors explain the most variance in retailer pricing strategy, followed by category and chain factors. Only in the cases of price-promotion coordination and relative brand price, do category and chain factors explain much variance in retailer pricing. Store, brand and customer factors capture an insignificant proportion of explained variance in retailer pricing. These findings are useful to retailers in profiling alternative pricing strategies. They can also help manufacturers make informed decisions about the levels of marketing support spending for their brands that are appropriate for different retailers. We outline the managerial implications based on the results.