Dinesh K. Gauri, a Walton College professor of marketing and holder of the Walmart Chair in Marketing, has had a paper “An Empirical Analysis of the Impact of Promotional Discounts on Store Performance” accepted for publication in the Journal of Retailing.
The paper was co-authored with Brian Ratchford, the Charles and Nancy Davidson Professor of Marketing at the University of Texas at Dallas; Joseph Pancras, associate professor of marketing at the University of Connecticut School of Business, and Debabrata Talukdar, professor of marketing at the School of Management at the University at Buffalo, The State University of New York.
The authors write that most popular marketing textbooks accept the “received wisdom” that deeply discounting items will generate store traffic for retailers, increasing sales and profits, but that “there is surprisingly little systematic evidence” about how discounting store traffic impacts sales. The paper delivers insights based on the effects of promotional discounts from scanner data gathered over 55 weeks and 24 stores of a grocery retailer.
The results of this study validate the widespread use of price promotions supported by feature advertising that provides beneficial impact on key store performance metrics. They also provide guidance to retailers on how to strategize their promotions across categories to maximize response on key metrics. The authors find that feature promotions build store traffic, especially when the categories being featured are high penetration, high frequency. All else equal, discounts on branded items are found to have a stronger impact on sales per transaction than discounts on unbranded items. Consumers buy more storable categories when there are deep discounts, though these do not translate to profitable spillovers, consistent with the literature on stockpiling. Discounting on more items in a category leads to lower store margins suggesting that the cost of discounting a large proportion of items in a category may not be justified by the profits generated by the sale. The authors discuss several implications of their findings for retailers in the paper.