Characterising the deal-proneness of consumers by analysis of price sensitivity and brand loyalty: an analysis in the retail environment

Abstract

This study characterises the ‘deal-proneness’ of consumers by analysis of the consumer-level characteristics of price sensitivity and brand loyalty. The study first develops a multinomial logistic (MNL) latent class model suitable for use with universal product code (UPC) point-of-sale (hypermarket) scanner data. The model is then used to assess the deal-proneness of consumers with respect to monetary promotions (price reductions) and non-monetary promotions (store flyers). The results show that almost 47% of consumers can be considered deal-prone, in that both kinds of sales promotions have a significant effect on their choice behaviour. The findings provide important insights for retail management in seeking to optimise the results obtained from promotional budgets.

Keywords:

• deal-proneness
• sales promotions
• price reductions
• store flyers
• latent class approach
• retail promotional budget

Notes

1. For example, while in the USA coupons are widely known and used (Schultz, Robinson, and Petrison 1998), in Europe the distribution and use of coupons is lower. Thus, in Spain, 67% of consumers admitted using coupons at least occasionally, but on average only 3.25 coupons per household were redeemed in 2003 (Martínez and Montaner 2006). However, the Spanish consumer received weekly flyers from different stores in their post boxes. On the contrary, in the USA, almost 90% of consumers reported using coupons, and an average of about 80 coupons per household were redeemed annually (Schultz, Robinson, and Petrison 1998).

2. In the high–low promotion strategy (HILO), temporary price discounts for selected items occur for some days, followed by weeks with normal prices. In the every-day-low-price (EDLP) strategy, the retailer promotes a basket of products with the argument to offer attractive low prices which will be constant for a longer period (Pechtl 2004).

3. Even though this concept is different from the price-consciousness concept (the latter refers to ‘the exclusive focus on paying low prices’ (Lichtenstein, Ridgway, and Netemeyer 1993) – that is, an attitudinal predisposition, whereas price-sensitivity is purely behavioural in it orientation), in this paper, both concepts will be used in the same sense, assuming that there is a direct relationship between a consumer's price-consciousness and his/her price-sensitivity, as many authors pointed out (Ailawadi, Neslin, and Gedenk 2001; Kim, Srinivasan, and Wilcox 1999).