Cross-category demand effects of price promotions

Abstract

Do promotions in a certain category lead to higher revenues in other categories? If so, to what degree? The answers to these questions are highly relevant for retailers that supply products in different categories. Empirical findings in studies that consider a limited number of categories indicate small promotional cross-category effects. This study develops a framework to determine the impact of price promotions on category revenues that include interdependencies among a substantial number of categories at the category demand level. The own- and cross-category demand effects are moderated by variables such as promotion intensity, category characteristics (own-category effects), and spatial distances between shelf locations (cross-category effects). The empirical results based on daily store-level scanner data show that approximately half of all price promotions expand own-category revenues, especially for categories with deeper supported discounts. There is a high probability (61%) that a price promotion affects sales of at least one other category. The number of categories affected is not greater than two. Moderate evidence supports the existence of cross-promotional effects between categories more closely located in a store.