Dinesh K. Gauri, K. Sudhir, and Debabrata Talukdar
Executive Summary
Price promotions are pervasive in grocery markets. A household can respond to price promotions by effective cherry picking through (1) spatial price search across stores and (2) temporal price search across time. However, extant research has only analyzed these two dimensions of price search separately therefore has underestimated both the consumer response to price promotions and the impact of promotions on retail profit. In this article, the authors introduce an integrated analysis of spatial and temporal price search.
The authors seek answers to three questions: First, what are the predictors of household decisions to perform either spatial or temporal price search, both, or neither? Second, how effective are the temporal, spatial, and spatiotemporal price search strategies in obtaining lower prices? Third, what is the impact of alternative price search strategies on retailer profit? They use a unique data collection approach that combines household surveys with observed purchase data to address these questions.
The key results are as follows: Geography (the spatial configuration of store and household locations) and opportunity costs are useful predictors of a household’s price search pattern. Households that claim to search spatiotemporally avail approximately three quarters of the available savings on average; even those that claim not to search on either dimension systematically avail approximately one-half of the available savings. Households that search only along one of the two dimensions (spatial or temporal) save about the same (i.e., approximately two-thirds of the available savings).
Furthermore, in contrast to claims in the trade press that extreme cherry pickers (i.e., those who contribute negative margins) are a considerable drain on profits, we find that extreme cherry pickers constitute only 1.2% of all shoppers at two grocery stores of a supermarket chain. The losses from them are only approximately .2% of the total profits of the stores. Therefore, the negative effect of cherry picking on retailer profits is not as high as is typically believed.
Biography
Dinesh K. Gauri is Assistant Professor of Marketing in the Whitman School of ManagementManagement at Syracuse University. He received his PhD from the State University of New York (SUNY) at Buffalo. He also holds master’s degrees in Economics from SUNY Buffalo and in Mathematics and Computer Applications from Indian Institute of Technology, Delhi. This article is a part of his dissertation research, which has received the best doctoral dissertation proposal award from Fordham University Pricing Center in 2006 and an honorable mention award for the Levy and Weitz doctoral dissertation proposal competition sponsored by the American Marketing Association’s Retailing Special Interest Group and the Miller Center for Retailing Education and Research at the University of Florida in 2005. His research interests include consumers’ price search, retail promotion effectiveness, exploring retail store performance, and e-store loyalty issues.
K. Sudhir is Professor of Marketing in the Yale School of Management. He was previously on the faculty at the Stern School of Business at New York University. He received his PhD from Cornell University. His research spans a wide range of markets, including automobiles, film, grocery retailing, movies and DVDs, personalization services, banking, and high technology. Research topics of interest include empirical models of competition and channels, customer relationship management, and international diffusion. He received the 2003 Frank Bass Dissertation Paper Award and an honorable mention for the 2001 Best Paper Award in the International Journal of Research in Marketing. He was a finalist for the 2006 Paul Green Award for the best article in the Journal of Marketing Research and the 2001 John D.C. Little Best Paper Award in Marketing Science. He serves on the editorial boards of Journal of Marketing Research and Marketing Science.
Debabrata Talukdar is Associate Professor of Marketing in the School of Management at the State University of New York at Buffalo. He received his PhD in Marketing and Applied Economics from the University of Rochester. He also holds master’s degrees in Operations Research from the University of Rochester and in International Development from the Massachusetts Institute of Technology. Before joining academia, he worked on international development and environmental policy issues at the World Bank. His primary research interests include the effect of the interface of business and public policies on economic development and the environment, urban poverty issues, consumer and firm behavioral dynamics under information uncertainty, the impact of the Internet on such dynamics, and new product diffusion process. His research continues to be widely cited, with more than 125 citations to date in leading academic journals from a wide spectrum of areas, such as economics and public policy, marketing, management science, computer information system, law, and public health.
Journal of Marketing Research, Vol. XLV, No. 2, April 2008
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