Dynamic Effects of Price Promotions: Field Evidence, Consumer Search, and Supply-Side Implications

This paper investigates the dynamic effects of price promotions in a retail settingthrough the use of a large-scale field experiment which involved varying the promotion depths of 170 products across 17 categories in 10... [ view full abstract ]

This paper investigates the dynamic effects of price promotions in a retail setting
through the use of a large-scale field experiment which involved varying the promotion depths of 170 products across 17 categories in 10 supermarkets of a major retailer in Chile. In the intervention phase of the experiment, customers were exposed to a promotion schedule that differed only on promotional depths: treated customers were exposed to 30% discounts, whereas control customers were exposed to 10% discounts. In the subsequent measurement phase, the promotion schedule held discount levels constant across groups. We find that treated customers were 22.5% more likely to buy promoted items than their control counterparts, despite facing the same promotional deals. The result is robust to a number of concurrent dynamic forces. We assess the implications to manufacturers by considering a demand-side model in which consumers search for deals, and a supply-side model in which firms compete for those consumers.