The effects of competitive context on consumer response to price changes

ABSTRACT

This paper aims to understand how a brand’s price level, relative to its competitors, will affect consumers’ responses to price changes of the brand. The study uses experiments to examine brand choice responses to price increases and decreases across contexts differing in competitor brands and their respective prices. These experiments are conducted with six consumer goods categories. The research identifies three key factors that affect the size of responses to brand price changes – (1) passing a competitor brand’s price, (2) narrowing versus widening the price gaps with competitors, and (3) whether competitors are predominantly higher or lower priced brands.

KEYWORDS:

• Brand price elasticity
• cross-price elasticity
• pricing
• experimentation
• competitive context

Acknowledgments

The authors would like to dedicate this paper to the memory of John Scriven, who made a significant contribution to the understanding of consumer responses to price change and many other aspects of buyer behaviour and brand performance.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. We tested various options for the error structure (e.g. unstructured, factor analytic, autoregressive) for the repeated observations in the model and found the results changed very little according to alternative specifications.

2. Separate tables for estimated marginal means are not included due to space constraints and to avoid redundancy.

3. Note, ‘a brand with higher-priced competitors’ does not mean that the brand is the cheapest in the market, rather, it means that the majority of brands are priced higher than the focal brand; compared to when the majority of brands are priced lower than the focal brand.

Additional information

Notes on contributors

Steven Dunn

Steven Dunn is a Postdoctoral Research Fellow at the Ehrenberg-Bass Institute for Marketing Science, University of South Australia. His key areas of interest include understanding the sales effects from brand price changes, sales promotions and advertising exposures. He has published in journals such as Journal of Retailing and Consumer Services, International Journal of Market Research and Australasian Marketing Journal.

John Dawes

John Dawes is Senior Researcher and Professor of Marketing at the Ehrenberg-Bass Institute, University of South Australia. His research interests centre around pricing effects, repeat-purchase behaviour, brand metrics. He has published in journals such as Journal of Retailing, Journal of Service Research and European Journal of Marketing.

Svetlana Bogomolova

Svetlana Bogomolova is an Associate Professor at the Ehrenberg-Bass Institute for Marketing Science, at the University of South Australia Business School. She is a consumer behaviour researcher studying the influence of supermarket environment (i.e. price promotions, region of origin signage, nutrition information) on consumer choices. Her research informs the practice of industry partners (multi-national, local businesses and non-for-profit organisations) and government policy about protecting and promoting consumer interests. She has published in leading journals in marketing, retailing, and public health fields.