How supermarket price promotions can impact demand for other items

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.