The Relationship Between Market Characteristics and Promotional Price Elasticities

Abstract

Many empirical studies in marketing and economics have estimated brand price elasticities for specific products in markets. Their results indicate that price elasticities seem to differ across brands, product categories, retail outlets, and regions. However, there has been very little research which examines the factors associated with these observed differences. This paper focuses on the promotional price elasticities of established, major brands in stable categories. It identifies some characteristics of markets which may be associated with differences in price elasticities for frequently purchased nondurables. A cross-sectional model of the effect of these market characteristics on price elasticities is developed and estimated utilizing own price elasticity estimates for brands at twelve stores. The results indicate market characteristics such as brand market share, couponing activity, display activity and feature activity explain a substantial amount of the variation in promotional price elasticities.