Executive Summary
Although a significant body of research indicates that promotions provide a substantial short-term lift for the promoted item, less attention has been given to the basket-level impact and the role of mental budgets. Recent research suggests that consumers allow room (in-store “slack”) in their mental budgets for unplanned purchases on grocery-shopping trips. In this article, Stilley, Inman, and Wakefield examine the effects of promotional savings on consumer spending while incorporating consumers’ mental budgets. They demonstrate that promotional savings’ effect on spending depends on whether the item is planned or unplanned and whether the item is purchased before or after in-store slack is depleted. In addition, they study how these relationships vary with income.
The researchers conduct a field study in which more than 300 shoppers used handheld scanners to record the order of their purchases. The results suggest that savings on planned items lead to stockpiling by higher-income shoppers when the savings occur before the in-store slack has been spent but lead to increased purchase of unplanned items when savings occur after in-store slack has been spent. The results also indicate that savings on unplanned items before the in-store slack is depleted have no impact on basket size, implying that many in-store promotions simply serve to influence what unplanned items the shopper buys rather than to generate incremental spending. Finally, the results show that savings on unplanned items after the in-store slack is depleted are positively related to unplanned item spending. This suggests that promotions on unplanned items can be effective at encouraging shoppers to purchase additional unplanned items, but only when the savings occur after shoppers’ in-store slack is depleted.
These findings have several important implications for shopper marketing. Manufacturers and retailers should consider placing stockpiling-inducing promotions (“buy-one get-one free”) earlier in the store traffic pattern, when shoppers are more likely to have in-store slack remaining. They might also want to consider traffic flow so that “reminder” displays of full-price, high-margin, unplanned items are encountered early in the trip, while price promotions on unplanned items are encountered later in the trip, after in-store slack is depleted. Overall, this research shows that while retailers tend to benefit from promotions on planned items, they should tread carefully when offering likely unplanned items at a discount. Although the manufacturer may benefit from increased unplanned purchases, the retailer may not receive an overall sales lift. Indeed, retailers may even realize a decrease in net profits if a higher percentage of items are purchased at a lower margin.
Biography
Karen M. Stilley is a postdoctoral fellow at the University of Pittsburgh. She received her PhD from the University of Pittsburgh and her MBA from Pennsylvania State University. Her research focuses on mental accounting and shopper marketing. She has published research in Journal of Consumer Research. Before pursuing her PhD, she was a market intelligence specialist for IBM and a test marketing manager for American Eagle Outfitters.
J. Jeffrey Inman is Albert Wesley Frey Professor of Marketing in the Katz Graduate School of Business at the University of Pittsburgh. His research focuses on shopper insights and in-store decision-making. He recently developed a new course on shopper marketing. He is on the editorial board of Journal of Consumer Research, Journal of Marketing Research, Journal of Marketing, Marketing Science, Journal of Consumer Psychology, International Journal of Marketing Research, and Journal of Retailing. He is also an associate editor at Journal of Marketing Research and associate dean for research and faculty. He has published more than 25 articles in the top journals in the field: Journal of Marketing, Journal of Consumer Research, Journal of Marketing Research, and Marketing Science. Before venturing into academia, he was a production supervisor for General Motors and a semiconductor distribution manager for Texas Instruments.
Professor Kirk L. Wakefield is Executive Director of the Sports & Entertainment Marketing programs in the Hankamer School of Business at Baylor University in Waco, Texas. His research in retailing, sports, and entertainment consumption has appeared in Journal of Marketing, Journal of Retailing, Journal of Advertising, Journal of Advertising Research, Journal of Sport Management, and Journal of Leisure Science, among others.
Journal of Marketing, Volume 74, Number 3, May 2010
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