1. Lively tunes boost sales in crowded stores

    September 11, 2017 by Ashley

    From the Journal of Retailing at New York University press release:

    If a store is crowded, people tend to buy more if the sound system is playing a fast-paced song rather than a ballad. That’s what a team of researchers found in a field experiment across a chain of grocery convenience stores in Northern Europe.

    The researchers — Klemens M. Knoeferle of the BI Norwegian Business School in Oslo; Vilhelm Camillus Paus, of Saatchi & Saatchi in Oslo; and Alexander Vossen of the University of Siegen, in Germany — conducted a longitudinal experiment to determine whether and to what extent music played a role in influencing shoppers when stores were more or less crowded. The authors noted that customer spending tracked an inverted U-shape as stores became more crowded. They found that when stores weren’t crowded, music had little effect, but as social density increased, music with an up-tempo beat spurred spending.

    In “An Upbeat Crowd: Fast In-store Music Alleviates Negative Effects of High Social Density on Customers’ Spending,” appearing in the September issue of The Journal of Retailing, the authors describe a six-week field experiment in 2014 that tested the interaction between manipulated music tempo and measured social density. The sample included 460 small stores and recorded a total of 43,676 observations about shopping basket value (SBV) and the number of purchased items. Compared with no music, as a store became more crowded, the average SBV was roughly 8 percent greater. The authors also observed that SBV was higher due to shoppers’ buying more items rather than more expensive ones.

    Managerial implications were clear: first, the authors say, retail managers should be aware of crowding’s effect on spending patterns and find ways to control it; second, ambient music is a relatively easy tool for retailers to mitigate crowding effects; and third, the authors provide a metric for measuring when social density demands some lively tunes. In addition, when customers are few, retailers might save royalty fees by not playing music, and because fast music in crowded stores motivated customers to buy more low-priced items, managers should prepare for a run on impulse purchases.


  2. When hoping to be seen as powerful, consumers prefer wider faces on watches, cars

    September 5, 2017 by Ashley

    From the University of Kansas press release:

    People are typically averse to wider human faces because they elicit fears of being dominated. However, consumers might like wider faces on some products they buy, such as watches or cars, when they want to be seen in a position of power in certain situations, according to a new study led by a University of Kansas marketing researcher.

    “When consumers are motivated to dominate others, or when they use the product in public, their liking will be heightened toward high-ratio product faces,” said Ahreum Maeng, assistant professor in marketing at the KU School of Business.

    Maeng’s study she co-authored with Pankaj Aggarwal, professor of marketing at the university of Toronto, was published recently in the Journal of Consumer Research, one of the leading journals on marketing academic research.

    In five experiments, respondents examined photos of human faces that varied from low width-to-height ratio (narrow) to ones with a higher ratio (wider) to establish the perception of dominance when seeing higher-ratio faces. The researchers also had respondents view photos of products that might have a design resembling a human face, such as watch and clock faces and automobiles, from low to high width-to-height ratios.

    “These kinds of things are automatically going on in people’s brains,” Maeng said. “When we see those shapes resembling a human face in the product design, we can’t help but perceive it that way.”

    Researchers have established that people are evolutionarily adapted to read facial cues, especially those signaling dominance, and the width-to-height ratio of face is a cue to attribute dominance to the face. In the notion of anthropomorphism, scholars have found people often attribute human traits to non-human entities, such as products.

    In addition, the researchers had participants view the images while they thought about different scenarios, such as preparing to encounter either an old high school bully or a former sweetheart at a 10-year-old high school reunion or a business trip that might require a difficult negotiation.

    Their main finding was that when people felt they were in a situation where they might want to be perceived as dominant — such as that business negotiation or when seeing an old bully at a high-school reunion — people were inclined to select the wider product design for a watch or car they might be renting for the trip.

    Maeng said this differs from how people tend to see dominance in the human face. They typically become averse to a higher width-to-height ratio because they feel threatened or intimated.

    “But when it comes to a dominant-looking product face, they really like it,” she said. “It’s probably because people view the product as part of themselves and they would think, ‘it’s my possession. I have control over it when I need it, and I can demonstrate my dominance through the product.”

    In scenarios where participants did not feel the need to project any dominance, such as a more laid-back time with their children or family, the width-to-height ratio of the products became less important, the researchers found.

    Maeng said the findings have important implications for marketers of products that might resemble a human face, such as watches with a circular face and cars. They found consumers’ preferences for dominant-looking product faces is not the same as people’s preference simply for luxury or expensive items.

    Also, typically, product-design efforts have focused on visual aesthetics and ergonomics, an assumption that beauty and functionality covers the entire canvas of product design. However, more recent contrary findings by marketing researchers suggest that product design can signal a specific personality trait about the product.

    Maeng said this type of preference means that manufacturers and marketers would be able to charge higher prices for products that have wider faces. They have already found a positive relationship in examining 2013 prices of automobiles based on the width-to-height ratio, and their study likely supports those types of decisions.

    “Brand managers and product designers may be particularly interested in these findings,” the researchers said, “because a simple design feature, namely product face ratio, can have marketplace impact — by significantly improving the company’s bottom line.”


  3. Study suggests way to success for sales newbies

    by Ashley

    From the Michigan State University press release:

    Good news for novice salespeople worried about becoming successful: Expressing your gratitude to customers by going above and beyond your job description may be as effective as developing long-term relationships with them, indicates a first-of-its-kind study.

    The scientific investigation into both customer and salesperson gratitude, led by Michigan State University business scholar Stephanie Mangus, is particularly relevant as Millennials enter the workforce and become major consumers. Substantial evidence shows that Millennials, or those born between about 1980 and 2000, are emotionally driven buyers.

    Salespeople who control the emotional tone of their buyer-seller relationship tend to have an upper hand, Mangus said. And one way of controlling that emotional tone is for salespeople to express their gratitude to the customer in positive ways, which in turn can foster customer gratitude and loyalty.

    “We’re not saying you have to go out and hug your customer,” said Mangus, an assistant professor of marketing and an expert in business relationships. “All we’re saying is that you should take action on that emotion in a positive way, to put that emotion into practice. Maybe that’s one extra phone call to share a piece of information with your customer, or maybe that’s one extra call to the service department to make sure that customer doesn’t fall to the end of the list.”

    Mangus and colleagues studied salesperson and customer surveys in a business-to-business setting from a large transportation logistics firm. The study found that when salespeople did not go above and beyond, customer gratitude was low overall – and even lower in new relationships between salesperson and client (compared with long-term relationships).

    But when the salesperson did go above and beyond by expressing their gratitude through action, which the researchers call “extra-role behaviors,” customer gratitude shot up to the same high level for both new and long-term relationships.

    “There’s a general acceptance that the longer you’ve been in a business relationship, the more loyal that customer is to you and the more they’re going to buy from you,” Mangus said. “But what we found is that extra-role behaviors can sometimes take the place of that. So if you’re going above and beyond, it may not matter that it’s a newer or developing relationship.”

    And that’s great news for new and aspiring salespeople.

    “One of the big fears of our sales students is that, ‘Oh man, sales jobs are scary because I’m going to go out there and not have customers and not be able to make any money,” Mangus said. “But what new salespeople have is excitement, energy and passion to prove themselves. So if they are grateful for someone just willing to let them come in the door, and they engage in these extra-role behaviors, they can potentially get over the fact that they haven’t been a salesperson for 20 years and that they don’t have an ongoing relationship with this customer.”


  4. Understanding how persuasion works can make consumers more savvy

    August 23, 2017 by Ashley

    From the American Psychological Association (APA) press release:

    When someone offers a free sample, it’s not really free. It comes with the implied expectation that if a person accepts it, he or she will feel obligated to return the favor and eventually pay for the full product. That’s just one of the many insights psychology has uncovered about the subtle mechanics of persuasion and how people can recognize and respond to attempts to influence their behavior.

    “Persuasion is no longer just an art, it’s an out-and-out science,” said Robert Cialdini, professor emeritus of psychology and marketing at Arizona State University, speaking at the 125th Annual Convention of the American Psychological Association. “Indeed, a vast body of scientific evidence now exists on how, when and why people say yes to influence attempts.”

    Considered by many to be the expert in understanding social influence, Cialdini has conducted decades of research to formulate his six universal principles of influence.

    The first principle is reciprocity, Cialdini said. This is a simple quid-pro-quo relationship where people feel the need to return a favor. Everyone has encountered this with the “free sample” marketing campaigns or the “free trial.”

    Logically, that leads into the next principle, commitment, according to Cialdini. Once someone is hooked on a product, it’s easier to get him or her to commit to paying for it. When people decide or promise, they tend to stick to their word, according to this principle. If that commitment ends up being out of line with their internal beliefs, people tend to rationalize or change their beliefs to be in alignment with that choice, he said. This is also the basis of the low-ball approach favored by car salespeople, according to Cialdini, who conducted research early in his career suggesting that a preliminary decision to take an action tends to persist even after the costs of performing that action have been increased.

    Humans also have an innate pack mentality, which Cialdini calls social proof, citing research he conducted with hotel guests who were asked to reuse towels to save the environment. His study found that guests were 29 percent more likely to reuse their towels if they were told that most other guests chose to reuse the towels. The percentage went up to 39 percent when they heard the majority of guests who had stayed in that room reused their towels.

    Authority is another very powerful principle in play in almost all efforts at persuasion. If someone is an expert in a field, people often believe he or she is more likely to be effectively persuasive, according to Cialdini.

    “When it comes to world economics, who are you more likely to listen to for advice: a Nobel laureate in the field or some random commenter on Facebook?” he asked.

    People are also more likely to listen to others who are complimentary and similar to them. This is known as the principle of liking, according to Cialdini.

    Finally, people are more likely to want what they think they can’t have. This is Cialdini’s principle of scarcity, which works through the concept of anticipated regret, where people look to the future and regret the possibility that the option of a decision might be taken away from them, according to Cialdini. One example of this is when stores offer a sale with limited availability.

    These principles are so powerful, they generate desirable change in the widest range of circumstances, he said.

    But influencing others is not the same as manipulating, he said. To ensure that changing other’s behavior is effective and long-lasting, it is imperative to use the principles ethically, he said. For example, he cited numerous studies that showed companies using dishonest hiring practices are more likely to have stressed employees, which leads to higher absenteeism, higher medical bills and higher turnover.

    “People, companies and marketers need to ask themselves whether the principle of influence is inherent in the situation — that is, do they have to manufacture it or can they simply uncover it? That is important. No one wants to be a smuggler of influence,” he said. “Claiming to be an expert when they’re not, exploiting power, those eventually will have negative consequences.”

    People can also develop resilience to manipulation by others. By taking time to become familiar with and understand when these principles are being used, individuals can spot the influence attempt. Does the person trying to influence really have authority? When someone says something is rare or scarce, is he telling the truth?

    “We can focus too heavily on economic factors when seeking to motivate others toward our offerings and ideas,” he said. “We would do well, as well, to consider employing psychological motivators such as those we have covered here.”


  5. How taste and sound affect when you buy

    August 21, 2017 by Ashley

    From the Brigham Young University press release:

    There’s a reason marketers make appeals to our senses; the “snap, crackle and pop” of Rice Krispies makes us want to buy the cereal and eat it. But as savvy as marketers are, they may be missing a key ingredient in their campaigns.

    New research finds the type of sensory experience an advertisement conjures up in our mind — taste and touch vs. sight and sound — has a fascinating effect on when we make purchases.

    The study led by marketing professors at Brigham Young University and the University of Washington finds that advertisements highlighting more distal sensory experiences (sight/sound) lead people to delay purchasing, while highlighting more proximal sensory experiences (touch/taste) lead to earlier purchases.

    “Advertisers are increasingly aware of the influence sensory cues can play,” said lead author Ryan Elder, associate professor of marketing at BYU. “Our research dives into which specific sensory experiences will be most effective in an advertisement, and why.”

    Elder, with fellow lead author Ann Schlosser, a professor of marketing at the University of Washington, Morgan Poor, assistant professor of marketing at San Diego State University, and Lidan Xu, a doctoral student at the University of Illinois, carried out four lab studies and a pilot study involving more than 1,100 study subjects for the research, published in the Journal of Consumer Research.

    Time and time again, their experiments found that people caught up in the taste or touch of a product or event were more likely to be interested at an earlier time.

    In one experiment, subjects read one of two reviews for a fictional restaurant: One focused on taste/touch, the other emphasized sound/vision. Participants were then asked to make a reservation to the restaurant on a six-month interactive calendar. Those who read the review focusing on the more proximal senses (taste and touch) were significantly more likely to make a reservation closer to the present date.

    In another experiment, study subjects read ad copy for a summer festival taking place either this weekend or next year. Two versions of the ad copy existed: one emphasizing taste (“You will taste the amazing flavors…”) and one emphasizing sound (“You will listen to the amazing sounds…”).

    When subjects were asked when they would like to attend, those who read the ad copy about taste had a higher interest in attending a festival this weekend. Those who read ads emphasizing sounds were more likely to have interest in attending the festival next year.

    If an advertised event is coming up soon, it would be better to highlight the more proximal senses of taste or touch — such as the food served at the event — than the more distal senses of sound and sight,” Schlosser said. “This finding has important implications for marketers, especially those of products that are multi-sensory.”

    As part of the study, researchers also learned an interesting insight into making restaurant reviews more helpful. In their field study, the authors analyzed 31,889 Yelp reviews to see if they could find connections between the sensory elements of a reviewer’s experience and the usefulness of a review.

    They found reviews from people who emphasized a more distal sense (such as sight) were rated more useful when the review used the past tense (“We ate here last week and…”), while people emphasizing a proximal sense (touch) had more useful reviews when they used the present tense (“I’m eating this right now and it is so good!”).

    “Sensory marketing is increasingly important in today’s competitive landscape. Our research suggests new ways for marketers to differentiate their products and service, and ultimately influence consumer behavior,” Elder said. “Marketers need to pay closer attention to which sensory experiences, both imagined and actual, are being used.”


  6. Study suggests managers often overestimate customer satisfaction

    by Ashley

    From the Indiana University press release:

    Despite the millions companies spend to gather information about customer satisfaction, senior managers often fail to understand those customers’ expectations.

    Neil A. Morgan, professor and PetSmart Distinguished Chair of Marketing at Indiana University’s Kelley School of Business, and four co-authors of a recent journal article present a huge disconnect between managers and customers in terms of understanding what drives customer satisfaction and loyalty.

    The researchers used data from 70,000 American Customer Satisfaction Index surveys and compared it with responses to the same questions posed to 1,068 marketing managers and those in customer-facing roles at the American Customer Satisfaction Index-measured companies, predominately Fortune 500 firms.

    Their results show that managers in a wide cross-section of industries often overestimate their customers’ satisfaction. This leads them to rely on unrealistic expectations when making marketing decisions and allocating resources to address marketplace issues.

    “Clearly there’s been a communication breakdown,” Morgan said. “Either the messages aren’t being disseminated, or they aren’t being understood within organizations. Otherwise, managers would have a better understanding of both the level and drivers of dissatisfaction among customers.

    “That means that there are customer satisfaction problems that are not being solved, because managers don’t know or don’t believe that they exist,” he added. “Even if they did, they try fixing the wrong things.”

    The paper, “Do Managers Know What Their Customers Think and Why,” appears in the Journal of the Academy of Marketing Science.

    Most of the large consumer-focused firms in the study sample have customer-satisfaction monitoring and feedback systems in place and invest heavily in them. Morgan believes that managers aren’t being exposed to the customer feedback data or they aren’t understanding it accurately.

    “These overly optimistic managers are likely to miss trouble signs when they appear,” the researchers wrote. “This is compounded by managers significantly underestimating the proportion of customers who have complained about the firm’s products or services in the recent past.

    Inaccurate understanding of what drives customers’ perceptions of products and services hampers a company’s ability to react to an issue. Even when managers recognize a need to improve customers’ perceptions, they may fail to do so in a way that leads to the desired outcomes.

    For example, the survey results indicate that managers are more likely to underinvest in raising customer quality perceptions as a way to enhance customer satisfaction.

    “Our findings may also provide an explanation for overemphasis on cost-cutting and efficiency observed in firms’ strategies relative to that on quality improvements or achieving differentiation,” the study said. “Where managers overestimate their own customer perception of the firm’s performance, cutbacks that undermine the quality of service, for example, may seem less dangerous than they really are.”

    “There seems to be a belief in lots of companies — and it’s kind of an urban myth — that most people who are unhappy won’t complain,” Morgan added. “Therefore, the complaints that you get are not representative of the level of satisfaction that exists among general customers. This data suggests that they shouldn’t be treating complaints as something different. They should be used as part of an overall customer feedback system.”

    Customer satisfaction is a significant factor on the bottom line, and previous studies have found that customer complaints impact stock returns.

    “For managers, the results of our study should serve as a wake-up call that all is not well with most firms’ customer satisfaction and complaint monitoring systems,” the researchers wrote. “Despite often being the single biggest line-item of most firms’ market research expenditures, existing customer feedback systems are not performing an effective management control role.”


  7. Study suggests retailers can benefit by showing ads from competing companies on their websites

    by Ashley

    From the University of Texas at Dallas press release:

    A few years ago, Dr. Mohammad Zia PhD’17 was checking flight prices on Expedia when he was puzzled by a section of the website that prompted him to run the same search on competing travel websites, including Priceline and Orbitz.

    “Instead of Expedia trying to keep me on its website and trying to sell me something, it was encouraging me to check out prices on these other travel websites, and some of these are very tough competitors,” Zia said. “I was thinking, ‘What’s going on? Why would a for-profit firm send its own customers, who are already in their store, to a competitor?'”

    Zia, who completed his PhD in management science from the Naveen Jindal School of Management in May, decided to study this practice of in-store advertising by competitors. The resulting paper, co-authored by marketing professors Dr. Dmitri Kuksov and Dr. Ashutosh Prasad, is one chapter of Zia’s dissertation on multiplatform, search-based advertising. It was published in the May-June issue of Marketing Science.

    The researchers soon noticed this is a common practice across the web. For example, Walmart hosts banner ads for TVs from Sears or Fry’s Electronics to customers searching for TVs on Walmart.com.

    Similarly, Amazon.com shows related ads from competing retailers to a customer who is shopping for different products.

    “Research has shown that there is a lot of price dispersion in online stores. If customers want to save money, they should search on many different platforms, especially with travel products like flights and hotels.”

    When a host store sells its in-store advertising space to a competitor, this allows uninformed customers to become aware of substitute offerings in the marketplace and possibly migrate to the competing store, Zia said. The host store may benefit from a commission for customers it sends to the competitor.

    For the study, the researchers used game theory to understand the driving forces behind this phenomenon. Zia said he wanted to know under what conditions would allowing competitor advertising be a beneficial strategy.

    “When some customers have search costs — including time, energy and money — it might be optimal for Expedia to increase its average price in order to motivate these customers to click on the link,” Zia said. “Because Priceline knows these customers have already observed high prices, that website also can raise prices. So the average prices will be higher on both stores.”

    The study found that this kind of advertisement is not always an optimal solution for businesses. It works only if the commission rate is relatively high. Only in that case can it mitigate price competition and boost profits of both firms.

    Zia, who has taken a position as an assistant professor of marketing at Chapman University in California beginning this fall, said search-based advertisement is generally a useful shopping tool that is accessible, targeted and helps customers find what they want quickly. It can also help searchers to pay less.

    He said customers are wise to shop around.

    “Research has shown that there is a lot of price dispersion in online stores. If customers want to save money, they should search on many different platforms, especially with travel products like flights and hotels,” Zia said. “But of course there are customers who do not have time. That results in price dispersions and enables firms to increase their prices.”


  8. Study shows how weather impacts response to mobile ads

    August 10, 2017 by Ashley

    From the Institute for Operations Research and the Management Sciences press release:

    Among the many factors that impact digital marketing and online advertising strategy, a new study in the INFORMS journal Marketing Science provides insight to a growing trend among firms and big brands … weather-based advertising. According to the study, certain weather conditions are more amenable for consumer responses to mobile marketing efforts, while the tone of your ad content can either help or hurt such response depending on the current local weather.

    As mobile users may have already noticed, many major brands — including Burberry, Ace Hardware, Taco Bell, Delta Airlines, and Farmers Insurance — are currently leveraging weather-based promotions. Indeed, more than 200 others have partnered with the Weather Channel Company for targeted advertising and promotions.

    The study, “Sunny, Rainy, and Cloudy with a Chance of Mobile Promotion Effectiveness,” was conducted by Chenxi Li of Beihang University, Xueming Luo of Temple University, Cheng Zhang of Fudan University, and Xiaoyi Wang of Zhejiang University. The authors examined field experiment datasets with mobile platforms (SMS and APP) on two digital products (video-streaming and e-book reading) on over six million mobile users in 344 cities across China. They simultaneously tracked weather conditions at both daily and hourly rates across these cities, with a focus on sunny, cloudy and rainy weather.

    The authors found that overall, consumer response to mobile promotions was 1.2 times higher and occurred 73 percent faster in sunny weather than in cloudy weather. However, during raining conditions, that response was .9 times lower and 59 percent slower than during cloudy weather. Better-than-yesterday weather and better-than-forecast weather engender more purchase responses. A good deviation from the expected rainy or cloudy weather with relatively rare events of sunshine significantly boosts purchase responses to mobile promotions. In addition, compared with a neutral tone, the negative tone of prevention ad content hurts the initial promotion boost induced by sunshine, but improves the initial promotion drop induced by rainfall. The authors also ruled out the possibility that the results could arise purely because of different mobile usage behaviors during different weather conditions. Their results also took into account the effects of individual locations, temperature, humidity, visibility, air pressure, dew point, wind, and time of day.

    “Obviously, although brand managers cannot control the mother-nature weather, our findings are non-trivial because they suggest that brands can leverage the relevant, local weather information in mobile promotions. Firms should use the prevention-tone ad copy on rainy days and the simple neutral-tone ad copy on sunny days to attain greater bang for the buck,” said Li.

    “Given that consumers nowadays are inundated with and annoyed by irrelevant ads on their personal mobile devices and small screens, for marketers, these findings imply new opportunities of customer data analytics for more effective weather-based mobile targeting,” Luo added.


  9. Study suggests marketing strategies for offline retailers

    August 8, 2017 by Ashley

    From the Journal of Retailing at New York University press release:

    For retailers, the era of the online marketplace brings previously unimaginable opportunity and risk: on one hand, the universe of customers has expanded exponentially, and with it the amount of information available on individuals’ buying patterns. The risk so far has fallen disproportionately on retailers who lack on online presence, as the e-commerce share of US retail nearly doubled in the past five years. New research to be published in the September 2017 issue of the Journal of Retailing shows that savvy offline retailers can use data gleaned from online retail to boost their own sales.

    In “Product Touch and Consumers’ Online and Offline Buying: The Role of Mental Representation,” Wumei Liu, of Lanzhou University’s School of Management, Rajeev Batra of the Ross School of Business at University of Michigan, and Haizhong Wang of Sun Yat-Sen University’s School of Business showed that the effect of being able to touch a product on consumers’ purchase intention and willingness to pay for a product depends on the individual’s mindset: that is, does this person think concretely or abstractly? For concrete thinkers, product touch is important; for abstract thinkers, not so much. The offline retailer who can mine the wealth of consumer research data available through the internet to pinpoint these concrete thinkers, the authors suggest, can target them with appropriate marketing strategies.

    The authors designed three studies to determine how people’s mental representations of the products they are evaluating for purchase affects their purchase decisions. Some individuals, they surmised, have a tendency and ability to think abstractly while others respond more to concrete stimuli, and the latter would value more the opportunity to physically examine a product before buying it. One study, for example, primed participants to think abstractly in one condition and concretely in another. In each condition, they were then asked to decide about buying a mug that was placed in a transparent plastic box; some participants could handle the mug while others could not. When concrete representation was primed, participants’ willingness to buy the mug increased when they could touch it, but when abstract representation was primed, the effect of touch was insignificant. A second study confirmed this effect and showed it was mediated by perceived ownership and perceived risk simultaneously. A third study with a nationally representative sample was able to replicate the results of the first two studies.

    The implications for offline retailers, the authors write, suggest that they should try to identify consumers who value touch and that this information is easily available through syndicated psychographic data on consumers. With such segmentation, for example, retailers could offer free trials to these consumers. But online retailers can also benefit, by promoting an abstract mindset, such as consumers’ passion and love for life, in their marketing and merchandising.


  10. Study assesses effectiveness of loss-leader strategy

    July 30, 2017 by Ashley

    From the Journal of Retailing at New York University:

    Deep discounting by retailers, accompanied by a blitz of promotions, is a long-established and well-accepted strategy for boosting brand and category sales. But relatively few studies have analyzed store-level data in an effort to compile systematic empirical evidence on the impact of deep discounting on such store performance metrics as traffic, sales, and profits. New research delves into the numbers to find out if the received wisdom is justified.

    In “An Empirical Analysis of the Impact of Promotional Discounts on Store Performance,” Dinesh K. Gauri, a marketing professor at the University of Arkansas’s Walton College of Business, and co-authors Brian Ratchford, Joseph Pancras, and Debabrata Talukdar gathered data from 24 branches of a grocery chain in the Northeastern US over 49 weeks. Their analysis of several different metrics, to be published in the September 2017 issue of the Journal of Retailing, showed that that deep discounting is a valid strategy supported by the numbers, with the caveat that broad discounting in a category may lead to diminishing returns.

    For each week in each of the two dozen stores, the authors compiled data on overall traffic, sales per transaction, and margin, for a total of 13,815 transactions, with a mean value of $15.44 and margin of 23.6 percent. They looked at the impact of loss leader strategies, including promotional expenditures, on penetration and frequency, impulse buying, stockpiling, and store brands. Besides confirming the legitimacy of the strategy in general, they unearthed insights that could help shape retailing strategy.

    Among the findings that can give retailers an edge: the data showed that discounts on high-penetration, high-frequency items — staples such as meat and produce — and low-penetration, low-frequency items — fill-ins, like beer and spreads — led to increased traffic but lower sales per transaction, suggesting that these features tend to attract small-ticket customers. However, discounts in these categories were associated with higher margins, especially with the low-penetration, low-frequency category, suggesting that the smaller transactions generated by the discounts tend to contain an above-average number of high-margin items in addition to the discounted items — a result driven mainly by beer, which was featured almost every week.