Measuring the Cost of Supermarket Promotions

TY - UNPB

T1 - Measuring the Cost of Supermarket Promotions

AU - Gao, Cixiu

PY - 2014

Y1 - 2014

N2 - The widespread use of retail promotions and the magnitude of dollars spent on them call economists to examine the role of promotional costs in shaping the coordination of pricing and promotion decisions. In this study, I estimate the marginal cost of price promotion in the retail industry. The estimates imply that the marginal cost of promotion ranges from $0.97 to $4.98 per promotion, and the total promotion cost comprises 3.6 to 17.1 percent of store revenues, or 10.4 to 23.7 percent of profits. The results also indicate that stores with higher promotion elasticities are able to afford more expensive promotions. Stores with higher promotion costs, however, would have to offer deeper price discounts in order to attract more store visits.

AB - The widespread use of retail promotions and the magnitude of dollars spent on them call economists to examine the role of promotional costs in shaping the coordination of pricing and promotion decisions. In this study, I estimate the marginal cost of price promotion in the retail industry. The estimates imply that the marginal cost of promotion ranges from $0.97 to $4.98 per promotion, and the total promotion cost comprises 3.6 to 17.1 percent of store revenues, or 10.4 to 23.7 percent of profits. The results also indicate that stores with higher promotion elasticities are able to afford more expensive promotions. Stores with higher promotion costs, however, would have to offer deeper price discounts in order to attract more store visits.

M3 - Working paper

BT - Measuring the Cost of Supermarket Promotions

ER -