Thursday, December 1, 2011
Posted by D. Daniel Sokol
Janine Empen, Department of Agricultural Economics, University of Kiel, Jens-Peter Loy, Department of Agricultural Economics, University of Kiel and Christoph Weiss, Department of Economics, Vienna University of Business and Economics analyze Price Promotions and Brand Loyalty: Empirical Evidence for the German Breakfast Cereals Market.
ABSTRACT: Price promotions are important marketing activities for (food) retailers; brand loyalty is a major requisite to foster brands' assets. Several theoretical papers have analyzed the relationship between price promotions and brand loyalty resulting in mixed or perhaps contradictory outcomes; only a few empirical studies for (European) grocery markets are available to test which model(s) might be most relevant to reflect pricing strategies in food retailing. In this analysis, two detailed data sets for the German ready-to-eat breakfast cereals market are merged to investigate the relationship between price promotions and brand loyalty. We find significant empirical evidence that stronger brands tend to be promoted less frequently at lower discounts compared to weaker brands. The reason might be that price reductions are more costly for brands having loyal customers who are willing to accept higher mark-ups. Therefore stronger brands might need to come up with alternative measures to recruit new customers instead of offering attractive promotional sales.