Cross-category demand effects of price promotions

Do promotions in a certain category lead to higher revenues in other categories? If so, to what degree? The answers to these questions are highly relevant for retailers that supply products in different categories. Empirical findings in studies that consider a limited number of categories indicate small promotional cross-category effects. This study develops a framework to determine the impact of price promotions on category revenues that include interdependencies among a substantial number of categories at the category demand level. The own- and cross-category demand effects are moderated by variables such as promotion intensity, category characteristics (own-category effects), and spatial distances between shelf locations (cross-category effects). The empirical results based on daily store-level scanner data show that approximately half of all price promotions expand own-category revenues, especially for categories with deeper supported discounts. There is a high probability (61%) that a price promotion affects sales of at least one other category. The number of categories affected is not greater than two. Moderate evidence supports the existence of cross-promotional effects between categories more closely located in a store.

Decomposing the sales promotion bump accounting for cross-category effects

Extant research on the decomposition of unit sales bumps due to price promotions considers these effects only within a single product category. This article introduces a framework that accommodates specific cross-category effects. Empirical results based on daily data measured at the item/SKU level show that the effects of promotions on sales in other categories are modest. Between-category complementary effects (20%) are, on average, substantially larger than between-category substitution effects (11%). Hence, a promotion of an item has an average net spin-off effect of (20 - 11 =) 9% of its own effect. The number of significant cross-category effects is low, which means that we expect that, most of the time, it is sufficient to look at within-category effects only. We also find within-category complementary effects, which implies that competitive items within the category may benefit from a promotion. We find small stockpiling effects (6%), modest cross-item effects (22%), and substantial category-expansion effects (72%). The cross-item effects are the result of cross-item substitution effects within the category (26%) and within-category complementary effects (4%). Approximately 15% (= 11% / 72%) of the category-expansion effect is due to between-category substitution effects of dependent categories.