پاسخ سهم بازار و تعامل رقابتی : تاثیر تغییرات موقت، تغییرات در حال تحول و تغییرات ساختاری در قیمت

Managing pricing is a challenging task due to the significant impact on shares and the likelihood of strong consumer and competitor reaction. The major contributions of this paper are to assess comprehensive share response to temporary, evolving and structural changes in prices and to determine the level of market share as a function of levels of prices. For the empirical analysis, we examine two consumer product categories and find that it is valuable to distinguish among temporary, evolving and structural changes in prices, as their impact on market shares tends to differ. Further, we find that subsequent competitive reaction will influence predictions of price response. Accordingly, it is important for managers to use conjectures regarding competitive price reactions in assessing the impact of policy changes. We conclude with the strategic implications of the findings and discuss a number of opportunities for future research.

Pricing decisions are important to managers due to the significant and immediate impact of price changes on shares and profits and the potential for strong reactions from consumers and competitors. Pricing ranked third in overall importance among 15 marketing issues in a survey by Davidson and Stacey (1997) and was cited as “extremely important” by 78% of the respondents. Companies continually change their price strategies and tactics with a view to increasing sales or profitability. Some price changes are temporary movements around a fairly stable level consistent with I(0) behavior. For example, a brand that offers a 2-week price discount off a fairly stable level engages in such a temporary effort. Other price changes are permanent if there is no return to the previous level. If a company engages in a regular practice of discount policies, this would lead to evolving prices or I(1) behavior, an example of a permanent change. Another type of permanent change is a structural change in price in favor of a new level different from the previous level. If a company announces a one-time 20% price cut, leading to a new price level, this is an example of a structural change. As an illustration, Fig. 1 shows the market share and price series for the Miller brand of beer over 365 weeks while Fig. 2 shows the market share and price series for the Blue Bonnet brand of margarine over 104 weeks. The price series for Miller indicates there is evolution in price or a permanent price change, accompanied by an evolution in market share. Fig. 2 shows that Blue Bonnet brand has a structural change in price along with a structural change in market share in week 62. Finally, it is evident from the graphs that every 4 to 5 weeks both brands have temporary price promotions.There are other real-world illustrations for the three types of pricing behavior. See the following, for example. (1) Companies adopt short-term promotional tactics ranging from 25 cents off a six-pack of soda to thousands of dollars off an automobile in order to gain sales in terms of brand switching, repeat purchase, stockpiling and consumption. These tactics correspond to temporary price changes. (2) A company offers a price discount that generates immediate positive response resulting in subsequent regular practice of offering discounts. The airline pricing tactics in 1992 resulting in price wars is an example of permanent, evolving price behavior. While this type of price behavior may result in short-run gains, it would result in sustained losses due to competitive action and reaction (Dekimpe and Hanssens, 1999). On the other hand, sustained increases in prices can result in substantial long-run profits. (3) A company reduces prices to a new level by offering a significant one-time price cut. For example, in the dry cereal category, Kellogg's announced a 20% across-the-board price cut as a result of declining shares. These three scenarios raise important questions from a managerial standpoint. First, managers are interested in assessing the comprehensive share response to temporary, evolving and structural changes in prices. Managers need to know the share elasticities in response to these types of price changes so that they can make strategic decisions about levels of prices (list prices) vs. tactical decisions on the extent of price discounts. Second, managers are also concerned with whether or not, and to what extent, the reaction from competitors will influence predictions of price response. Omission of competitive reaction may lead to biased estimates of market response to price and other marketing variables (see, e.g., Leeflang and Wittink, 1992 and Leeflang and Wittink, 1996). Indeed, Bucklin and Gupta (1999) argue that these two managerial issues are unresolved and point to an immediate need for academic research in this area. Our approach is based on two modern empirical frameworks, Vector Auto-Regressive Models (VAR, hereafter) and Vector Error-Correction Models (VEC, hereafter). Our model follows the VAR model proposed by Dekimpe and Hanssens, 1995b and Dekimpe and Hanssens, 1999 and estimates market share, price and competitive prices as a simultaneous system of equations. We derive the static equilibrium conditions for the VAR model. Structural changes in prices and shares are determined using the structural break tests. Once a structural break is identified, the stability of the model is crucial to the task of evaluating the impact of structural changes within the system. Parameter stability is tested using diagnostic tests such as the plot of recursive residuals and the CUSUM test. If the parameters of the data generating process are invariant to structural shifts, one can then assess the impact of structural changes in prices on market shares using the static equilibrium conditions of the VAR model. To assess the impact of temporary changes in price and evolving prices on market shares, we use the time-series technique of cointegration analysis and impulse–response analysis. These techniques provide us with the long-run price elasticities—that is, the response to evolution in prices—and the short-run price elasticities—the response to temporary price reductions. We address the following research questions in this paper: (1) What is the impact of temporary changes in prices, evolving prices and structural changes in prices on market shares? (2) Do competitors and consumers respond to permanent changes (both evolving and structural) in prices in the same way that they respond to temporary changes in these variables? Our analysis offers new contributions to the literature in this area. First, we introduce the typology of temporary, evolving and structural changes in prices and discuss the managerial implications of these types of changes. Second, we estimate the comprehensive share (comprehensive in the sense of a multivariate system) and competitive response to these types of price variations. Finally, we formally gauge the influence of unilateral price-setting behavior in a dynamic-system context. The paper is organized as follows: in Section 2, we highlight how our effort differs from and builds on extant literature in the area. Section 3 discusses our modeling approach, Section 4 describes the scanner data we use and Section 5 provides the empirical results. Section 6 presents conclusions and offers directions for future research.

We offer novel findings and new contributions on the three types of price changes—temporary, evolv- ing and structural—to the literature in this area. Table 7 summarizes the key findings of our study; we emphasize the main managerial implications, from both a tactical and a strategic perspective, in the following discussion. 6.1. Managerial implications based on our empirical analysis v Distinguish among temporary changes in prices, e Õ ol Õ ing prices and structural changes in prices, as their impact on market shares tends to differ . While temporary price changes only cause a temporary change in shares, both structural changes in price and evolving prices have per- manent effects on market shares. Structural shifts to levels of price do shift levels of market share for the margarine data. On the one hand, in the margarine category, for two out of the three brands, share response to structural price changes is greater than response to temporary price changes. On the other hand, we find that short- run price elasticities—response to temporary changes—are greater than the long-run price elasticities—response to evolving prices—in the beer category. These differences may be partly due to category-specific effects; temporary pricediscounts may be more likely lead to increased consumption for beer than for margarine. v When should firms use one type of price change Õ s. another? From a tactical perspective, tempo- rary price variations may be more effective at increasing shares for lower-selling brands rather than for higher-selling brands in the short run, as evidenced in the beer category. From a strate- gic perspective, managers may ask this ques- tion: If I am in a price decrease mode, should I offer a series of small but continuous price decreases or a single large price decrease? Structural price cuts allow the firm to get to the desired market share level sooner and elicit delayed competitive reaction. Moreover, they generate greater share response because when consumers see a brand’s price that is outside the acceptable range of prices, it is contrasted with the acceptable range and becomes more notice- able. Hence, our results suggest that a structural price cut is preferable to a series of continuous price decreases. v Competitors do not respond the same way to the three types of price changes . Structural price changes elicit delayed competitive response since strategic decisions concerning price levels tend to be manufacturer-dominated while tem- porary changes in prices and evolving prices elicit immediate response since tactical deci- sions concerning temporary promotions tend to be retailer-dominated. Moreover, competitors are likely to respond with a delay when prices have been relatively stable and therefore the price change is unanticipated as opposed to situations where price movements have been continual. Our results provide evidence of the A double jeopardy B effect of price promotions as a result of temporary price changes. From a manager’s point of view, it is clearly not prudent to pro- mote a brand frequently, thus inviting immedi- ate competitive reaction. This, in turn, leads to a persistent reduction of prices in the category in the long run. v Anticipate competiti Õ eresponsetoprice changes . Subsequent competitive reaction af- fects predictions of price response. Firms should try to anticipate their competitors’ behavior, i.e., form conjectures regarding competitive price re-actions in assessing the impact of policy changes. Firms should use competitive intelligence to understand competitor’s motives, capabilities and potential reactions. 6.2. Limitations and future research Our study has some limitations. First, we esti- mated separate models for each brand due to data restrictions and degrees-of-freedom problems when estimating extended VAR models in a simultaneous system. In terms of future research, it would be fruitful to develop a model in which all competitors are considered simultaneously. Second, our analysis pertains to two categories. Future research concern- ing the nature of the long-run response to permanent changes in levels of prices may benefit from system- atic collection of data across different conditions and circumstances so as to provide empirical generaliza- tions. Third, while these findings are very important to management, more research is needed to determine the profitability of these results. However, this issue has been under-researched due to the unavailability Ž. of suitable data. Jedidi et al. 1999 and Dekimpe Ž. and Hanssens 1999 have made a first attempt to address the profitability of different long-run market- ing strategies. Finally, some pricing decisions need attention at the brand manager level while others need attention at the retail-account level. This, in turn, leads to a demand for analysis at the store level rather than the brand level. Academic research has Ž only now begun to address this topic Bucklin and . Gupta, 1999 . These are key issues for future re- search