Direct and indirect effects of retail promotions on sales and profits in the do-it-yourself market

Authors:
Dirk Van den Poel;Jan De Schamphelaere;Geert Wets
Affiliations:
Department of Marketing, Ghent University, Hoveniersberg 24, 9000 Gent, Belgium;Ghent University, Hoveniersberg 24, B-9000 Gent, Belgium;Limburg University Centre, Universitaire Campus, B-3590 Diepenbeek, Belgium
Venue:
Expert Systems with Applications: An International Journal
Year:
2004

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Abstract

In this study, we measure complementary effects of retail promotions for a large number of product pairs. For this, we make use of market basket analysis. We argue that failing to take these cross-effects into consideration, may lead retail managers to severely underestimate the impact of promotional efforts. Moreover, we provide guidelines for optimizing promotional strategies. To this end, we introduce lift, a measure for the strength of a complementary relationship, as a moderator in explaining the variation in complementary effects of retail promotions across product pairs. We show that the stronger the complementary relationship (higher lift), the stronger is the cross-impact of retail promotions. However, in case of simultaneously promoting two complementary products, larger promotional impact is seen when weaker product pairs (lower lift) are considered.