Analysis of Sales Promotion Effects on Household Purchase Behavior

Neslin (1998), there is a great need for further study, both theoretical and empirical, in this
area. Although both academics and managers appear to be well aware <strong>of</strong> the potential for such
an effect, there is little empirical research that examines promotion’s potential to increase
category demand. <strong>Promotion</strong>’s effect on consumption stems from its ability to increase
household inventory level. Higher inventory, in turn, can increase consumption through two
mechanisms: fewer stockouts and an increase in the usage rate during non-stockout periods. It
might be relatively easy to get consumers to stockpile, but getting consumers actually to use
more <strong>of</strong> these products is a different problem. Assunçao and Meyer (1993) showed that
consumption increases with inventory, not only because <strong>of</strong> the stock pressure from inventory
holding costs, but also because higher inventories give consumers greater flexibility in
consuming the product without having to worry about replacing it at high prices. Chiang
(1995) found no category expansion effect in the detergent category. Wansink and Deshpandé
(1994) showed in a lab study that promotional activity might cause consumers to consume a
stockpiled product more quickly. The research performed by Wansink (1996) demonstrated
that larger package sizes influence the usage volume <strong>of</strong> usage variant products, partially
because larger packages are perceived to be less expensive to use (lower perceived unit costs).
It is not surprising therefore, that directly decreasing a product’s price correspondingly
increases usage volume. If perceptions <strong>of</strong> unit costs can accelerate usage volume, it appears
that various retailer promotions, such as “2-fers” (buy two for the price <strong>of</strong> one), “BOGO’s”
(buy one, get one free), and multipacks may not only stimulate purchase, but also stimulate
greater usage frequency simply because <strong>of</strong> their reduced unit costs.
Ailawadi and Neslin (1998) demonstrated the existence <strong>of</strong> the flexible usage rate
(consumption depends on the available inventory) empirically for yogurt and catsup. It turned
out that a substantial percentage <strong>of</strong> the short-term promotion sales bump was attributable to
increased category consumption, but that percentage differed across the two categories (35%
for the yogurt category and 12% for the catsup category).
Nijs et al. (2001) found that only 54 out <strong>of</strong> 560 categories showed evolving long-run
category-demand. Based on that, they derived the empirical generalization that long-run
category-demand effects are the exception, rather than the rule. In the short run, price
promotions were found to significantly expand category demand in 58% <strong>of</strong> the cases over, on
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