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Quantitative Marketing and Economics
An important question for retailers is whether promotions induce households to increase their in-store expenditures or merely reallocate a predetermined shopping budget. Should expenditures be fixed, retailers might decrease their profitability when running promotions by displacing expenditures from high margin to lower margin products. Using household level store receipts and an extended AIDS model, we provide evidence that while household expenditures do increase with promotions, there is also a significant reallocation of expenditures among the different categories. This implies that retailers have to choose carefully which products are promoted, if promotions are to increase profits.
consumer demand theory, market basket, household expenditures, AIDS model, econometric, estimation
Drèze, X., Nisol, P., & Vilcassim, N. J. (2004). Do Promotions Increase Store Expenditures? A Descriptive Study of Household Shopping Behavior. Quantitative Marketing and Economics, 2 (1), 59-92. http://dx.doi.org/10.1023/B:QMEC.0000017035.35940.60
Date Posted: 27 November 2017
This document has been peer reviewed.