Newswise — A fresh article in the Journal of Marketing, authored by researchers from University of Connecticut, Texas A&M University, University of Colorado at Boulder, and University of Florida, investigates the potential variation in demand for different products due to price promotions based on their relative positions within a display.
The upcoming Journal of Marketing study, authored by Christina Kan, Yan (Lucy) Liu, Donald R. Lichtenstein, and Chris Janiszewski, delves into the ramifications of positioning products next to promoted products, both positive and negative.
The upcoming Journal of Marketing study, authored by Christina Kan, Yan (Lucy) Liu, Donald R. Lichtenstein, and Chris Janiszewski, delves into the ramifications of positioning products next to promoted products, both positive and negative.
The pivotal inquiry of the study revolves around the differential impact of price promotions on various products, contingent upon their relative placements within a display. The study's findings affirmatively establish that price promotions do indeed influence the demand for other products based on their respective positions.
According to the researchers, their findings indicate that when the items placed nearby (proximal items) and the items placed farther (distal items) serve as strong substitutes for the promoted item, the implementation of a price promotion leads to a decrease in sales for proximal products compared to distal products. This phenomenon is referred to as a negative proximity effect. Conversely, when the proximal and distal items are weak substitutes for the promoted item, the promoted product contributes to an increase in sales for proximal products relative to distal products. This is known as a positive proximity effect. In such cases, the proximal product benefits from heightened attention due to its proximity to the promoted product.
The research team conducted eight studies to gather evidence supporting these sales patterns. One of the studies involved analyzing yogurt sales at a retail grocer. In cases where non-promoted products were strong substitutes for the promoted product, a 1% reduction in the price of the promoted product led to a 0.25% decrease in sales of proximal products, while there was no change in sales for distal products. Conversely, when non-promoted products were weak substitutes for the promoted product, a 1% decrease in the price of the promoted product resulted in a 0.10% increase in sales of proximal products. Once again, there was no notable change in sales for distal products.
Insights from the Studies
The findings regarding promotion-proximity yield three important insights.
Firstly, it challenges the common assumption that price promotions solely divert attention towards the promoted brand, neglecting other brands. Instead, the results demonstrate that price promotions not only attract attention to the promoted brand but also spill over attention to the surrounding brands.
Secondly, it challenges previous research that assumes goal-directed consumers systematically search a product display, ensuring all relevant products are considered before making a purchase decision. The analysis indicates that a price promotion can influence the likelihood of a proximal or distal product entering the consumer's consideration set, potentially increasing or decreasing their chances.
Lastly, it challenges the notion that multiple purchases stem from a single consideration set. Instead, this research suggests that consumers may search multiple locations within a product display, each generating a distinct consideration set and a unique opportunity for purchase.
Opportunities for Marketing Managers
Understanding how attention spills over to proximal products opens up several opportunities for marketing managers to capitalize on.
Firstly, managers can strategically exploit positive proximity effects by considering product subcategory boundaries. For example, if butter cookies and chocolate chip cookies are adjacent on a shelf, promoting a brand in between them can draw increased attention to the less substitutable proximal item, potentially leading to a positive proximity effect.
Furthermore, managers can leverage this understanding to direct attention towards full-priced higher margin brands. Expanding on this concept, positive proximity effects may also occur for non-substitutes, such as refrigerated yogurt and refrigerated desserts, presenting additional opportunities for managers to exploit.
Retailers often use loss leaders, such as discounted milk, to increase exposure to other non-promoted product categories in the store. However, a loss leader can also be employed to introduce customers to new products within a specific category. For instance, discounting almond milk and surrounding it with novel flavors or versions of non-promoted items like oat milk or soy milk can encourage trial of these new items. In this way, price promotions not only benefit the promoted brand but also enhance exposure to other high-margin items in the same product category.
In categories where price defines substitutability, such as wines organized by price levels, placing any item on sale would negatively impact proximal items. However, since consumers have little expectation regarding the arrangement of different cabernets, managers can strategically position lower margin items proximal to price-promoted items during the promotion to mitigate the negative influence.
Overall, understanding the dynamics of attention spill over and proximity effects provides marketing managers with valuable insights to optimize product placement and promotion strategies, ultimately driving sales and maximizing profitability.
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