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The impact of price promotions on producer strategies in markets with large product heterogeneity

Panzone, L. and Tiffin, R. (2012) The impact of price promotions on producer strategies in markets with large product heterogeneity. Agribusiness, 28 (4). pp. 421-439. ISSN 0742-4477

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To link to this article DOI: 10.1002/agr.21309

Abstract/Summary

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.

Item Type:Article
Refereed:Yes
Divisions:Interdisciplinary centres and themes > Centre for Food Security
Faculty of Life Sciences > School of Agriculture, Policy and Development > Economic and Social Sciences Division > Food Economics and Marketing (FEM)
ID Code:29007
Publisher:Wiley

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