Donald Lehmann

Market Response to a Major Policy Change in the Marketing Mix: Learning from Procter and Gamble's Value Pricing Strategy

Coauthor(s): Kusum Ailawadi, Scott Neslin.

Abstract:
A study uses Procter & Gamble's value pricing strategy as an opportunity to examine consumer and competitor response to a major, sustained change in marketing-mix strategy. The study estimates an econometric model to trace how consumers and competitors react to such changes. For the average brand, the study finds that deals and coupons increase market penetration and surprisingly have little impact on customer retention as measured by share-of-category requirements and category usage. For the average brand, advertising works primarily by increasing penetration, but its effect is weaker than that of promotion. The study finds that competitor response is related to how strongly the competitor's market share is affected by the change in marketing mix and the competitor's own response and to structural factors such as market share position and multimarket contact. The net impact of these consumer and competitor responses is a decrease in market share for the company that institutes sustained decreases in promotion coupled with increases in advertising.

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