The Brand Switching Fraction of Promotion Effects: Unit Sales Versus Elasticity Decompositions


The Brand Switching Fraction of Promotion Effects: Unit Sales Versus Elasticity Decompositions


HARALD J. VAN HEERDE
Tilburg University - Faculty of Economics and Business Administration
SACHIN GUPTA
Cornell University - Samuel Curtis Johnson Graduate School of Management
DICK R. WITTINK
Yale School of Management


August 2001

Yale SOM Working Paper No. MK-03

Abstract:     
Several researchers have decomposed sales promotion elasticities. A key result is that the majority of the sales promotion elasticity, about 74 percent on average, is purportedly due to secondary demand effects (brand switching) and the remainder is due to primary demand effects (timing acceleration and quantity increases). However, studies of unit sales effects suggest that the cross-brand sales effects together are less than half of the own-brand sales effect. Hence, there appears to be a dramatic difference between the relative size of the secondary demand effect based on the one hand on a decomposition of elasticities and on the other hand on a decomposition of unit sales effects. We explore the reason for this paradox and, since the research literature focuses on elasticities, we derive analytical expressions that relate the decomposition of unit sales effects to the elasticity decomposition. We apply these expressions to obtain estimated unit sales effect decompositions from previously reported elasticity decomposition results. We show why the elasticity-based decomposition is not interpretable as a unit sales decomposition, and we find that the unit sales brand switching component is much less than what the elasticity decomposition suggests. Instead of being about 74 percent, it is at most 33 percent on average. Thus, brand switching accounts for a far smaller percent of the unit sales promotion effect than what published results suggest.

Keywords: Promotion, Primary Demand, Secondary Demand


JEL Classifications: C33, D12, M31

Working Paper Series

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Contact Information for DICK R. WITTINK (Contact Author)


dick.wittink@yale.edu (Email address for DICK R. WITTINK )
Yale School of Management
Box 208200
New Haven , CT 06520-8200
United States
203-432-5979 (Phone)


Contact Information for SACHIN GUPTA


sg248@cornell.edu (Email address for SACHIN GUPTA )
Cornell University - Samuel Curtis Johnson Graduate School of Management
Ithaca , NY 14853
United States


Contact Information for HARALD J. VAN HEERDE


H.J.van.Heerde@uvt.nl (Email address for HARALD J. VAN HEERDE )
Tilburg University - Faculty of Economics and Business Administration
P.O. Box 90153
5000 LE Tilburg
Netherlands
31 13 466 3424 (Phone)
31 13 466 2875 (Fax)



Suggested Citation
van Heerde, Harald J., Gupta, Sachin and Wittink, Dick, "The Brand Switching Fraction of Promotion Effects: Unit Sales Versus Elasticity Decompositions" (August 2001). Yale SOM Working Paper No. MK-03. http://ssrn.com/abstract=281964
Paper Requests:

Contact Michael Iannazzi, Postal: P.O. Box 208200, New Haven, CT 06520-8200. Phone: 203-432-6027. Fax: 203-432-9992. Fee $20.




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