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RETAIL STRATEGY

How supermarket price promotions can impact demand for other items

By our News Team | 2023

Placing goods that are not on promotion next to ones that are being discounted can have both positive and negative effects.

Researchers from four US universities – Connecticut, Texas A&M, Colorado at Boulder and Florida – have published a new Journal of Marketing article that examines whether price promotions on some products differentially impact demand for other products, depending on their relative locations within a display.

The study, forthcoming in the American Marketing Association’s peer-reviewed publication, is titled ‘The Negative and Positive Consequences of Placing Products Next to Promoted Products’.

Retail Strategy

Photo by Needpix.com

Consumers select from a variety of competing products in multi-product displays. Some products are discounted, while others in close proximity are regularly priced.

The key question is: Do price promotions on some products differentially impact demand for other products, depending on their relative locations within a display? This new study concludes that the answer is ‘yes’.

The researchers say that when the proximal items (i.e., those placed nearby) and distal items (i.e., those placed farther) are strong substitutes for the promoted item, we find that a price promotion decreases the sales of proximal products relative to distal products. This is known as a ‘negative proximity effect’. 

However, when the proximal and distal items are weak substitutes for the promoted item, the promoted product increases the sales of proximal products relative to distal products. This is known as a ‘positive proximity effect’. 

“In this case, the proximal product benefits from the increased attention by virtue of being close to the promoted product,” the researchers explain.

The research team found evidence for these sales patterns across eight studies.

Opportunities for marketing managers

Understanding how attention spills over to proximal products creates several opportunities for marketing managers.

  1. Managers may consider product subcategory boundaries as opportunities to exploit positive proximity effects. Consider butter cookies and chocolate chip cookies bordering each other on a shelf. Placing a border brand on price promotion should draw increased attention to a less substitutable proximal item and increase the probability of a positive proximity effect.

Managers can take advantage of this to direct attention to full-priced higher margin brands. Taking this further, positive proximity effects may also occur for non-substitutes (e.g., refrigerated yogurt and refrigerated desserts).

  1. Retailers commonly conceive of loss leaders (e.g., milk) as items used to increase exposure to other non-promoted product categories in the store (e.g., product categories they pass on the way to the dairy aisle). However, a loss leader can also be used to introduce customers to new products within a product category. For example, imagine discounting a product like almond milk and surrounding it with novel flavours/versions of non-promoted items (e.g., oat milk, soy milk) to induce trial of those new items. In this sense, price promotions benefit the promoted brand and also increase exposure to other high margin items in the product category.
  2. Some products, such as wines on a shelf, may be organised by price levels. For categories in which substitutability is defined by price, placing any item on sale would have a negative influence on proximal items. Because consumers have little expectation of which cabernets should be located next to each other, managers may place lower margin items proximal to price-promoted items during the promotion.

You can read more about the study here.

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    Dr Kin Kariisa

    Group CEO - Next Media

    Dr. Kin Kariisa is an extraordinary force at the helm of Next Media Services, a conglomerate encompassing NBS TV, Nile Post, Sanyuka TV, Next Radio, Salam TV, Next Communication, Next Productions, and an array of other influential enterprises. His dynamic role as Chief Executive Officer exemplifies his unwavering commitment to shaping media, business, and community landscapes.
    With an esteemed academic journey, Dr. Kariisa’s accolades include an Honorary PhD in exemplary community service from the United Graduate College inTexas, an MBA from United States International University in Nairobi, Kenya, a Master’s degree in Computer Engineering from Huazong University in China, and a Bachelor’s degree in Statistics from Makerere University.
    Dr. Kariisa pursued PhD research in Computer Security and Identity Management at Security of Systems Group, Radboud University in Nijmegen, Netherlands. As a dynamic educator, he has shared his expertise as a lecturer of e-Government and Information Security at both Makerere University and Radboud University.

    Dr Kin did his PhD research in Computer Security and Identity Management at Security of Systems Group, Radbond University in Nigmegen, Netherlands. He previously served as a lecturer of e-Government and Information Security at Makerere University in Kampala, Uganda and Radbond University in Netherlands.

    Dr Kin did his postgraduate courses in Strategic Business Management, Strategic Leadership Communication and Strategies for Leading Successful Change Initiatives at Harvard University, Boston USA.

    • Other current and previous roles played by Dr Kin Kariisa:
    • Lecturer of e-Government and Information Security to graduate students at Makerere University, Kampala and Radbond University in the Netherlands
    • Director of Eco Bank Uganda Limited, one of the largest banks in Africa
    • Chairman of the National Association of Broadcasters, an umbrella industry association for all Television, Radio and online broadcasters in Uganda.
    • Chairman of Board of Directors of Nile Hotel International, that owns the leading hotel in Uganda, Kampala Serena Hotel.
    • Chairman of Board of Directors of Soliton Telmec Uganda, the leading telecom company in Optic fibre business managing over 80% of optic fibre in Uganda.