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EJM 39,1/2

Consumer evaluations of sales promotion: the effect on brand choice

Begona Alvarez Alvarez and Rodolfo Vazquez Casielles
Department of Business Administration, University of Oviedo, Oviedo, Spain
Abstract
Purpose This study evidences the inuence that sales promotion has on brand choice behaviour. Establishments wish to inuence consumers buying behaviour, and thus they launch strong promotional campaigns or introduce changes in their price policies, among other actions. However, they are not always capable of achieving their goal, since, although they may reach their objective in the short term, when the longer term is considered there are undesirable consumer actions. Design/methodology/approach The problem of consumer brand choice can be adequately described with logit models that allow the use of discrete dependent variables. The probability that the consumer chooses a brand depends directly on the capacity of satisfaction that the brand holds for him/her. In this case, the dependent variable is the brand, and the independent variables are price, reference price, losses and gains, and the different types or techniques of sales promotion. With the aim of obtaining the necessary information for the present study, a regional consumer panel was used. Findings The results show that it is necessary to consider the products promotional state at the moment of purchase as an explanatory element of the process. Promotion is a tool that can help manufacturers and/or retailers in the achievement of their objectives (try the brand, help to decide what brand to buy, etc.). Immediate price reduction is the technique that exerts greatest inuence on the brand choice process. It is possible that the consumer perceives a promotion, for example, coupons or rebates, but does not modify his or her behaviour. In this case, manufacturers and/or retailers will be investing their resources in promotional actions that do not have any effect on the consumer. Originality/value Presents a regional consumer panel that has been elaborated and planned by the authors. Because of this, the information collected is just what was necessary for this study. On the other hand, the paper shows that is very important to know the consumers preferences and the actions that inuence his or her behaviour. Considering the results, it seems that promotions based on price have the greatest effectiveness. Keywords Brands, Consumer behaviour, Prices, Advertising, Discounts, Promotional methods Paper type Research paper

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Received January 2004

European Journal of Marketing Vol. 39 No. 1/2, 2005 pp. 54-70 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510572016

Introduction Prices are used by retail establishments as an advertising appeal to attract consumers. This is shown by the increasing presence of product prices in the media and advertising campaigns. This is aimed at providing the consumer with a comparative element to judge the different alternatives he or she has at his or her disposal when making a purchase. Similarly, it can be seen that establishments invest a large part of their budget in sales promotion. The intention is to give the product greater appeal and value. Although a lot of sales promotion alternatives exist, traditionally the most widely used is immediate price reduction. However, this situation often depends on the country involved.

These ideas allow us to conclude that establishments wish to inuence consumers buying behaviour, and thus they launch strong promotional campaigns or introduce changes to their price policies, among other actions. However, they are not always capable of achieving their goal, since although they may reach their objective in the short term, when the longer term is considered there are undesirable consumer actions. In the present paper we aim to look closely into consumers buying behaviour. We analyse the inuence of a series of fundamental variables on the brand choice process: price, reference prices, losses and gains and loyalty. Special attention is given to the inuence that sales promotion actions developed by manufacturers and distributors have on this process. The structure of the present work is as follows. First we carry out a review of the brand choice models, where the inuence of price, reference prices, losses and gains and loyalty is analysed. Then the study focuses on sales promotions, the alternatives establishments have at their disposal, and those which are more acceptable to consumers. Next, we formulate the hypotheses we wish to contrast as well as the methodology used to this end and the results obtained. Finally, we expose the conclusions and business implications derived from the study. Brand choice models Manufactures and retailers wish to understand the way marketing variables like price, loyalty or promotions may affect their sales and therefore the market share of the products they commercialise. In previous studies the most appropriate way to outline brand choice behaviour has been sought. Following these studies, we can attest the existence of a series of fundamental variables, which we will comment on below (Figure 1). The rst such variable is price. The price observed at the moment of purchase is a fundamental variable. In the models of Winer (1985), Lattin and Bucklin (1989), Kalwani and Yim (1992), Mayhew and Winer (1992), Briesch et al. (1996) or Mazumdar and Papatla (2000), it appears as an essential matter of study. Closely related to price is reference price. We can consider the reference price as a subjective price level with which the consumer compares the prices observed at the moment of purchase. That is, when the consumer plans to buy a product, he or she will judge prices comparatively in order to determine whether the price is acceptable or not. Authors are unanimous about the importance of considering reference prices in the purchasing and brand choice process. Nevertheless, there is no agreement on their

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Figure 1. Process of brand choice

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formation. Some authors contend that reference prices are formed from the prices the consumer has faced on previous occasions, i.e. estimates based on the past (Mayhew and Winer, 1992; Rajendran and Tellis, 1994; Bell and Bucklin, 1999; Erdem et al., 2001). Other authors also take into account the tendency to buy in promotions, the price tendency or retailer characteristics (Kalwani et al., 1990; Kopalle and Winer, 1996). Other authors contend that it is difcult for the consumer to store information about old prices, and it is therefore more likely that the consumer forms reference prices at the sale point through the observation of certain brands prices (Hardie et al., 1993; Rajendran and Tellis, 1994). It is also possible to introduce the effect of loyalty towards different brands (Mazumdar and Papatla, 1995). As a result of consumers comparison between the price and the reference price, potential losses and gains emerge. The consumer perceives a gain when the reference price is higher than the observed price. If the observed price is higher than the reference price, the consumer experiences a loss. The repercussions of these variables on the brand choice process is clear. When the consumer perceives a loss, the utility that the alternative provides (brand) will diminish, and with it the likelihood of the purchase. If, in contrast, the consumer perceives a gain, he or she will be more inclined to purchase (Winer, 1986; Kalwani and Yim, 1992; Briesch et al., 1996; Mazumdar and Papatla, 2000). It has been observed that both effects are of different intensity, i.e. they produce an asymmetric response in consumers. However, there is no agreement on its direction. Some authors contend that the effect of losses will be greater than that of gains according to prospection theory (Hardie et al., 1993; Kalyanaram and Little, 1994). However, other authors like Greenleaf (1993, 1995) defend the opposite position, i.e. that the consumers will react more strongly to gains than to losses. It has been proved that the repercussions of both elements on consumers depend on the individuals loyalty. It is therefore interesting to segment the consumer market. Thus, we identify two groups, i.e. loyal and non-loyal consumers. It is likely that loyal consumers will respond similarly to losses and gains. However, it seems that non-loyal consumers will respond with more interest to gains (Krishnamurthi et al., 1992). The variables considered so far constitute the basis of consumers decisions. Models that study purchasing and brand choice behaviour take these variables as a starting point in their utility functions. In the present paper we consider sales promotion actions, together with the fundamental variables indicated above (price, reference price, losses and gains and loyalty). Thus, in the next section we approach a series of aspects related to sales promotions that it is necessary to take into consideration. Inuence of sales promotion on the brand choice process The implementation of an adequate sales promotion may guarantee an increase in sales in a short period of time. This justies the tendency of establishments to invest a large part of their budget in these actions. A few years ago, communication actions were more important, but they ended up saturating the nal consumer and lost their effectiveness. This has allowed sales promotion to acquire a greater prominence. Sales promotion is a set of stimuli that are offered sporadically, and it reinforces publicity actions to promote the purchasing of a certain product. Sales promotion techniques are intended to have a direct impact on buying behaviour. The objectives of

sales promotion will be reached to a greater extent when it is done sporadically, when the consumer does not expect it. If the consumer is capable of anticipating when a sales promotion action will take place, the results obtained will decrease. It is therefore necessary for the consumer not to be able to anticipate sales promotions, and thus not to incorporate these incentives into the products characteristics. However, this does not mean that sales promotion is something improvised by the establishment. Sales promotion actions must be properly planned, organised and integrated into the establishments marketing plan. The establishment must study the characteristics of the sector where it operates as well as its own characteristics. No less important is knowing the competitors characteristics, the actions they carry out, the promotions they employ, and the consumers characteristics. It is essential to know the audience being addressesed, their behaviour, psychological and demographic characteristics, among others (Figure 2). In this way it is possible to determine and design the promotional strategy to be developed. The organisation will have to choose the best sales promotion technique(s) to reach its objectives. It is necessary for the establishment to determine clearly the objective to be reached through sales promotion. Once this has been established, the advisability of employing one promotion technique or another can be derived. The objectives may in turn be of various kinds. The intention may be to increase the establishments visitors or to act on the consumers loyalty to the brand, increase products consumption or encourage trying out a new brand, among others. However, it is also relevant to distinguish between short-term and long-term objectives. The former are generally aimed at responding to the competitions promotion incentives or getting rid of stock. However, long-term objectives usually focus on increasing the market share, the benets and on developing an adequate image to win renown. The sales promotion technique to be developed will be different depending on the objectives. There is a wide range of possibilities. In Table I we show one of the classications of sales promotion techniques, specically that carried out by Brassington and Pettit (1997).

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Figure 2. Sales promotion strategy

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Money-based Reduced price Shelf On pack Coupon On/in pack Print ads Door-to-door Point-of-sale

Product-based

Gift-, prize- or merchandise-based Store-based Demonstrations

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Table I. Consumer sales promotion methods

Loyalty schemes Extra product Extra free Buy one, get one free Free in/on pack Samples On pack Print ads Door-to-door Trial size Direct mail Rebates Free with product Mail-in cash back Contests and sweepstakes Free mail-in Self-liquidating offer Source: Brassington and Pettit (1997)

The use of different sales promotion techniques varies substantially from one country to another. Thus, while the use of coupons is widespread in countries like the United Kingdom, in Spain it is immediate price reductions (price cuts) that are mostly used. Promotions provoke two reactions in people. The rst is an increase in consumption, i.e. more quantity of a product is acquired. The second is storage of the product for the future, i.e. the consumer acts anticipating his purchases. Chandon and Wansink (1999) contrasted these effects for certain categories of product. However, the effects will vary depending on the attractiveness of the techniques employed. On the other hand, is possible that consumers who do not buy the brand will want to acquire it because they are attracted by the sales promotion (Gupta, 1993). However, Brandweek (1994) found that some people who change brand due to a promotion change back to their favourite brand when buying that category of product later. It is necessary to highlight that the use of sales promotions to encourage brand and product purchase and consumption has to be sufcient. However it is necessary to stay alert, as the opposite effect could be provoked on certain occasions. This occurs when the consumer perceives that he is paying for unnecessary activities to enhance and position the product: this then provokes the opposite effect to the desired effect, i.e. the consumer will stop buying the promoted brand (Simonson et al., 1994). It is also possible that the consumer avoids buying the promoted brands so as not to have to justify his behaviour to his peer group (Simonson, 1989). There is also another reason why promotion may not obtain the expected results: the consumer may feel he is being manipulated and will punish the retailer by not purchasing the promoted brand or product. The inuence of sales promotions on the consumer will also depend on the consumers characteristics. We can point to the existence of three types of consumer segments: (1) those who nd these actions attractive and are therefore likely to buy the product; (2) those who nd them neither attractive nor necessary, and will therefore act by reducing their choice probability; and

(3) those who remain indifferent and are therefore not affected by these actions in their nal decision.

Evaluations of sales promotion

Formulation of hypotheses In view of the review carried out, we consider it necessary to approach the study of the brand choice models by taking into account not only the essential variables (i.e. price, reference price, losses and gains and loyalty), but also the inuence promotional actions have on them. As has been pointed out, promotions are frequently used by retailers for different purposes. Perhaps one of most relevant is the brand change, i.e. it is intended to increase a brands market share. The possibility has been suggested of employing different promotion techniques. Some are easy for the consumer (immediate price reductions). Others need more effort or participation on the part of the consumer (coupons, rebates or games). In both cases these promotions are related to the purchase of a specic product or brand. But we must also consider a series of promotions that are related to the situation at the sale point (the environment), like the celebration of anniversaries or special dates. Taking these aspects into account, we intend to contrast the following hypotheses founded on the analysis of previous studies and research works that acknowledge the need to introduce sales promotions into the brand choice models (Gomez, 1997; Mela et al., 1998; Suri et al., 2000; Lam et al., 2001). In fact, Gilbert and Jackaria (2002) contrast the necessity of introducing sales promotion like an explanatory factor of brand choice, as well as considering the effect of different types of technique that is possible to use. H1. Models that incorporate the effect of sales promotion on brand choice will obtain better estimates that those that do not consider this effect. H2. The effect price reduction promotions have on brand choice probability is greater that the effect caused by the existence of any other type of promotion.

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Research methodology General formulation: the model The problem of the consumers brand choice can be adequately described with logit models that allow the use of discrete dependent variables. These models full the assumptions of discrete choice theory. Then, the probability of brand choice is a function of the market value of this alternative, compared with the market value of the rest. Thus, the probability that a consumer chooses a brand depends directly on the capacity of satisfaction that the brand holds for him or her. The brand that the consumer perceives to be the most suitable alternative to satisfy his/her needs is the one that has the larger probability of being selected. When the consumer faces a purchase decision, he/she assigns a utility to each one of the available alternatives, opting nally for the alternative that provides him/her with the largest utility (Guadagni and Little, 1983; Kamakura and Russell, 1989). In this utility function, there are two types of components, one deterministic (represented by Viht) and one random (represented by eiht). The expression to use would be:

EJM 39,1/2

U iht V iht eiht ; V iht b0i

z X P1

bP V M P ; iht

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where Uiht is the utility of brand i (i 1, 2, 3, . . . , I) to household h (h 1, 2, 3, . . . , H) at purchase occasion t (t 1, 2, 3, . . . , T ), Viht is the deterministic component of the utility (which will depend on the perception that the consumer has of the attributes of the brand and of the different marketing variables that are applied on this brand), V M P is the value of marketing variable P (P 1, . . . , z) for brand i to household h at iht purchase occasion t, b0i is a specic coefcient for each brand, bP is a coefcient for marketing variables, and eiht is the random error of household h in the utility of brand i at purchase occasion t. Thus, considering the theory of discrete choice, to know the probability of choice of a brand is enough to know the probability that the utility of an alternative i (Uiht) is higher than any other k (Ukht): Prh i PrU iht $ U kht =;i k [ C N PrV iht eiht $ V kht ekht : The probability that an individual h chooses the brand i at the moment t is expressed as follows (formulation of the logit multinomial model): expV iht P iht PI ; i1 expV iht where 0 # P iht # 1 and
I X i1

P iht 1

for all h:

The deterministic component of the utility function can be expressed like a linear function of observed variables or attributes for each of the available alternatives. The coefcients of the variables of this linear function will be estimated using procedures of maximum likelihood. Collection of information and sample characteristics With the aim of obtaining the necessary information for the present study, a regional consumer panel was planned and elaborated. This panel was formed by a total of 200 consumers who collected information systematically about a total of 54 categories of product during a 12-month period. The information required of the consumers was as follows: . category of product; . brand; . type or modality; . date of purchase; . place of purchase;

. . .

. . . .

number of units purchased; price per unit; type of promotion (if the product was promoted the individual had to select the specic type of promotion); total value of purchase made; form of payment; whether the consumer was in possession of the establishments card; and whether the establishment had some type of special encouragement technique.

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The categories of products analysed corresponded to habitual or everyday consumer products for most households. Nevertheless within the group of products studied we can nd different levels of purchasing frequency, from daily purchases (milk or juice), to more sporadic purchases (brandy or infusions). The study focuses on one category of product, i.e. margarine, since it is a product present in most households shopping baskets. In the process of database debugging and creation we eliminated those households which did not buy the product on at least ve occasions during the realisation of the panel (we intended to eliminate the inuence of sporadic shoppers). With reference to the brands under study we selected, together with the stores brands, brands with a higher participation in the household panel. In the selected category of product, i.e. margarine, the market focuses on four brands which make up 71.5 per cent of the consumer panel. Regarding the sizes, we have selected the most relevant ones (i.e. 250 and 500 grams). Results In order to proceed to the study of the aspects related to sales promotion and brand choice, we obtained information about the promotional situation at the moment of purchase. In the collection of information we have distinguished between promotions related to a certain product (product promotions or product-based) and those related to the establishments general offer (environment or store-based promotions). Within each category (i.e. product promotions and environment promotions), we considered various types of techniques, as summarised in Figure 3. To carry out a more adequate analysis they have been grouped into three blocks, and thus we distinguish between price promotions, other product promotions and environment promotions. As we have previously pointed out, differences exist in the use of various promotional techniques in different countries. Thus, in Spain there is frequent use of immediate price reductions (reduced price). In the household panel analysed a clear difference exists: 24.2 per cent of purchases were affected by an immediate discount, while only 3.8 per cent were under another type of product promotion. Finally, environment promotions were present in 13.6 per cent of the purchases analysed. Effect of promotion on brand choice models The rst objective to achieve is to improve the estimate of brand choice models with their introduction into promotions. Thus we compare a model that includes the fundamental variables (price, reference price, losses and gains and loyalty), with a

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Figure 3. Methods of sales promotion analysed in the consumer panel

more advanced model where three variables that represent the different groups of promotions indicated are introduced. To calculate losses and gains it was necessary to estimate reference prices. In a work previous to the one presented here, different alternatives were analysed. The results showed that reference price estimates based on observation are the most appropriate. Specically, the approach used here calculates the reference price as the arithmetic mean of the highest and lowest prices observed at the moment of purchase. The models we proceed to compare are: . the initial model; . the price promotion model; . promotions related to the product (i.e. price promotions and other promotions related to the product); and . all types of promotions (i.e. price promotions, other promotions related to the product, and environment promotions). These models are discussed below. Initial model The initial model (model 1) is given by: U iht b0i bP P iht bLOSS LOSSiht bL;LOSS Lh LOSSiht bGAIN GAINiht bL;GAIN Lh GAINiht eiht :

Models with promotions The price promotion model (model 2) is given by: U iht b0i bP P iht bLOSS LOSSiht bL;LOSS Lh LOSSiht bGAIN GAINiht bL;GAIN Lh GAINiht bPROPRI PROPRIiht eiht : The model for promotions related to the product (i.e. price promotions and other promotions related to the product; model 3) is given by: U iht b0i bP P iht bLOSS LOSSiht bL;LOSS Lh LOSSiht bGAIN GAINiht bL;GAIN Lh GAINiht bPROPTO PROPTOiht eiht : The model for all types of promotions (i.e. price promotions, other promotions related to the product and environment promotions; model 4) is given by: U iht b0i bP P iht bLOSS LOSSiht bL;LOSS Lh LOSSiht bGAIN GAINiht bL;GAIN Lh GAINiht bPROTOT PROTOTiht eiht : In the above equations, Uiht is the utility of brand i to household h at purchase occasion t; Piht is the price of brand i for household h at purchase occasion t; Lh is a dummy variable (Lh is 1 when the household is loyal and 0 when the household is not loyal); LOSSiht is the difference given that the reference price is lower than the price of brand i for household h at purchase occasion t; GAINiht is the difference given that the reference price is higher than the price of brand i for household h at purchase occasion t; L is a dummy variable such that P 0 if P iht , PRht and P 1 if P iht . PRht ; G is a dummy variable such that G 0 if P iht . PRht and G 1 if P iht , PRht ; PROPRIiht is a dummy variable indicating that brand i was subject to a price promotion for household h at purchase occasion t; PROPTOiht is a dummy variable indicating that that brand i was subject to a product promotion for household h at purchase occasion t; PROTOTiht is a dummy variable indicating that brand i was subject to some type of promotion for household h at purchase occasion t; eiht is the random error of household h in the utility of brand i at purchase occasion t; b0i is a specic coefcient for each brand; bP is a coefcient for price; bLOSS is a coefcient for losses; bGAIN is a coefcient for gains; bL,LOSS is a coefcient for losses (loyal consumers); bL,GAIN is a coefcient for gains (loyal consumers); bPROPRI is a coefcient for price promotion; bPROPTO is a coefcient for product promotion; and bPROTOT is a coefcient for all types of promotion. The results obtained are summarised in Table II. In Table II we show information regarding the variables involved in the model and the goodness of t for each of the models estimated. In the rst column in Table II we present information about the initial model (with the fundamental variables) and in the next three columns the information derived from the models in which promotions are introduced is shown. The fundamental variables of the model as a whole have a remarkable inuence on the brand choice process. Specically, the price, losses and gains are signicant. With respect to loyalty, we must point out that it inuences perception and the consumers response to potential gains. However, its inuence on losses does not seem to be

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EJM 39,1/2

Y ih M0 28.296 5.387 1.438 22.506 0.782 5.225 4.663 0.642 21.855 21.012 21.484 1.027 1.009 0.977 0.984 0.983 0.984 1.016 0.979 0.976 0.997 0.981 1.017 0.979 0.975 0.997 0.659 1.026 1.010 0.978 0.983 0.982 0.649 25.849 23.185 1.519 21.504 22.043 20.178 2.749 (0.006) (0.000) (0.001) (0.129) (0.133) (0.041) (0.858) (0.000) (0.000) (0.521) (0.064) (0.312) (0.138) (0,000) (0.000) (0.150) (0.012) (0.434) 0.938 1.075 1.043 0.968 1.022 0.934 1.073 1.038 0.968 1.022 0.355

Y ih M1

Y ih M2

Table II. Brand choice models: model without promotion versus models with promotions Model without promotion Z Exp (b) 0.934 1.073 1.039 0.968 1.023 0.383 1.025 1.010 0.979 0.983 0.982 0.619 0.981 1.017 0.979 0.975 0.997 0.614 Model with price promotion Z Exp (b) Model with product promotion Z Exp (b) Model with all types of promotion Z Exp (b) 0.935 1.071 1.036 0.969 1.026 0.326 1.027 1.009 0.977 0.984 0.983 0.828 0.982 1.016 0.978 0.975 0.998 0.653 (continued) 28.479 5.035 1.230 22.372 0.898 23.111 2.922 4.472 0.657 21.825 21.019 21.481 20.760 5.661 23.555 1.502 21.562 22.100 20.125 22.074 1.989 (0.000) (0.000) (0.219) (0.018) (0.369) (0.002) (0.003) (0.000) (0.511) (0.068) (0.308) (0.139) (0.447) (0.000) (0.000) (0.133) (0.118) (0.036) (0.901) (0.038) (0.047) 28.535 5.189 1.291 22.490 0.790 22.575 3.180 4.263 0.756 21.661 21.098 21.571 21.635 25.816 23.615 1.563 21.465 22.145 20.229 22.165 1.863 2 8.518 5.177 1.264 2 2.493 0.765 2 2.691 2.982 4.326 0.743 2 1.760 2 1.093 2 1.551 2 1.436 2 5.694 2 3.529 1.564 2 1.495 2 2.144 2 0.239 2 1.822 1.965 (0.000) (0.000) (0.206) (0.013) (0.444) (0.007) (0.003) (0.000) (0.458) (0.078) (0.274) (0.121) (0.151) (0.000) (0.000) (0.118) (0.135) (0.032) (0.811) (0.068) (0.049) (0.000) (0.000) (0.197) (0.013) (0.430) (0.010) (0.001) (0.000) (0.449) (0.097) (0.272) (0.116) (0.102) (0.000) (0.000) (0.000) (0.143) (0.032) (0.819) (0.030) (0.062)

Price Gain Loss Lgain Lloss Promot Const Price Gain Loss Lgain Lloss Promot Const Price Gain Loss Lgain Lloss Promot Const

Model without promotion Z Exp (b) Reference brand Price Gain Loss Lgain Lloss Promot 2 906.0526 2 748.0182 316.0689 (15 g.l.) 0.1744 0.1579 763.0182 1,609.5364 1,594.5364 2906.0526 2743.2868 325.5316 (18 g.l.) 0.1796 0.1598 761.2868 1,622.7737 1,604.7737 9.4628 (3 g.l.) 2906.0526 2743.0099 326.0855 (18 g.l.) 0.1799 0.1601 761.0099 1,622.2198 1,604.2198 10.0184 (3 g.l.) 152.585 31.664 7.064 7.277 3.113 (0.000) (0.000) (0.070) (0.064) (0.374) 155.667 28.800 6.388 7.425 3.292 9.463 (0.000) (0.000) (0.094) (0.060) (0.349) (0.024) 155.354 28.966 6.058 7.403 3.411 10.017 (0.000) (0.000) (0.109) (0.060) (0.332) (0.018) Reference brand Reference brand

Model with price promotion Z Exp (b)

Model with product promotion Z Exp (b)

Model with all types of promotion Z Exp (b) Reference brand 157.069 27.259 6.756 6.840 3.389 11.867 (0.000) (0.000) (0.080) (0.077) (0.336) (0.008) 2 906.0526 2 742.0846 327.9360 (18 g.l.) 0.1810 0.1611 760.0846 1,620.3693 1,602.3693 11.8672 (3 g.l.)

Y ih M3

Global signicance

LL(c) LL(b) Test RV r2 r 2 adj. AIC CAIC SBIC Test RV (M/MP)

2 2 Notes: M model without promotions; M P model with promotions (price and product promotions; x 2 3:95% 7:81; x 15:95% 25:0; x 18:95% 28:9

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Table II.

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signicant. It is possible that loyal and non-loyal consumers do not differ in their response to a loss situation. As can be seen, the incorporation of promotions improves the models estimates. The goodness of t indicators point to slight increases. Similarly, through the likelihood ratio it is proved that the introduction of the new variables contributes signicant information to the initial model (in this ratio the information provided by the initial model is compared to that derived from each of the extended models). As we can see, the variables that represent the promotional state are signicant for the model as a whole. Therefore it is possible to state that the explicit consideration of promotions in brand choice models is adequate, since they provide better approaches to the consumers buying behaviour. As a result we have proved H1: brand choice models that incorporate the effect of promotions obtain better estimates than those in which this effect is not accounted for. Inuence of different sales promotion techniques Now we have conrmed the inuence of the inclusion of promotions on brand choice models, we intend to look more deeply into some aspects related to the use of the different techniques. As we have pointed out, there are various sales promotion techniques that can be employed, either individually or together. In the household panel we collected information about the existing promotional state at the moment of the purchase. Specically, we focused on the most widespread sales promotion techniques (Figure 3). However, despite the variety of promotion techniques, the most frequently used is immediate price reduction. In H2, we stated that the effect of price promotions on brand selection will be greater than that caused by any other type of promotional action. In order to prove this hypothesis, we introduce two new variables to the model proposed initially (price, reference price, losses and gains and loyalty, model 1). The rst represents price promotions. The second includes other of promotional actions. In this way, we will be able to analyse which of the two variables exerts greater inuence on the model. Specically, the model estimated is the following (model 5): U iht b0i bP P iht bLOSS LOSSiht bL;LOSS Lh LOSSiht bGAIN GAINiht bL;GAIN Lh GAINiht bPROPRI PROPRIiht bOTHERPRO OTHERPROiht eiht ; where PROPRIiht is a dummy variable that indicates that brand i was subject to a price promotion for household h at purchase occasion t; OTHERPROiht is a dummy variable that indicates that brand i was subject to another type of promotion (non-price promotion) for household h at purchase occasion t; bPROPRI is a coefcient for price promotion; and bOTHERPRO is a coefcent for any other type of promotion. In Table III we show a summary of the estimate for the new model proposed model 5. In order to determine which of the two variables representing the different types of promotion has the most weight in the purchasing process we must rst analyse whether each of them is signicant. If this is so, we must verify the importance of each variable through a x 2 value. As can be observed in Table III, the variable that represents price promotions is signicant, while the variable that represents the other promotion techniques is not.

Y ih M0 Z Exp (b) Price Gain Loss Lgain Lloss Propri Otherpro Const 28.527 5.177 1.240 22.493 0.793 22.537 20.235 2.350 (0.000) (0.000) (0.215) (0.013) (0.428) (0.011) (0.814) (0.019) (0.000) (0.000) (0.088) (0.062) (0.334) (0.039) (0.300) 0.934 1.073 1.037 0.967 1.023 0.355 0.899

Y ih M1 Z Exp (b) 4.329 0.744 21.749 21.101 21.567 21.444 0.319 24.865 (0.000) (0.457) (0.080) (0.271) (0.117) (0.149) (0.750) (0.000) 1.026 1.010 0.979 0.983 0.982 0.646 1.101

Y ih M2 Z Exp (b) Y ih M3 23.533 1.552 21.573 22.098 20.064 21.513 21.689 0.673 (0.000) (0.121) (0.116) (0.036) (0.949) (0.130) (0.091) (0.501) 0.981 1.017 0.978 0.975 0.999 0.704 0.633 Reference brand

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Global signicance Price 155.948 Gain 28.892 Loss 6.536 Lgain 7.335 Lloss 3.401 Propri 8.347 Otherpro 3.666

Indicators of the model adjustment LL(c) 2906.0526 LL(b) 2741.4539 Test RV 329.1973 (21 g.l.) r2 0.1817 r 2 adj. 0.1585 AIC 762.4539 CAIC 1,641.8080 SBIC 1,620.8080 Note: x 2 21:95% 32:7

Table III. Price promotions versus other types of promotion

Consequently, we can say that price promotions inuence buying and brand choice behaviour. In contrast, there is no evidence to support the inuence of other sales promotions. This leads us to conrm, as H2 put forward, that price promotions have a greater impact on consumer behaviour than other promotions. Conclusions and future research directions As can be concluded from the number of existing studies on this matter, consumer buying behaviour is a mystery for manufacturers and retailers, about which much remains to be learned. In the literature there are numerous works that try to shed light on the way that consumers plan and develop the purchasing process. A large number focus on the brand choice process. From them we can afrm that a series of relevant variables exists in this process. Although the behaviour varies from one consumer to another, there are some factors that inuence most consumers. In this way, we can state that the price of products and brands at the moment of the purchase constitutes a variable of interest. It will act to favour the purchase or choice of a specic brand (low price), or reduce the likelihood of its purchase or choice (high price). Similarly, given the importance of price, consumers usually form a reference

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price. Thus, when the consumer must take a decision he or she will act after comparing the price on offer with the reference price. From a comparison of prices and reference prices, potential losses (reference price lower than observed price) and potential gains (reference price higher than observed price) emerge. Losses act to reduce the brand choice probability, while gains act to increase it. It has been observed that these effects are of different intensity, i.e. they produce an asymmetric response in consumers. However, there is no agreement on the its direction. Some authors contend that the effect of losses will be greater that the effect of gains, according to prospection theory. However, other authors defend the opposite position, i.e. that consumers will react more strongly to gains than to losses. Nevertheless, not all consumers react in the same way and thus we can segment the market by distinguishing between consumers who are loyal to a brand and consumers who are not loyal to a brand. It is necessary to take into account such differentiated patterns of behaviour. Strategies that may be valid for one group are not necessarily valid for the other. These have been the most widely studied variables. However, it is necessary to take into account other variables such as promotions. Thus, in the present paper, apart from considering the effect of the variables already investigated, we have shown evidence of how sales promotion techniques inuence the consumers buying and brand choice behaviour. In this way, we have made clear the need to consider the products promotional state at the moment of purchase as an explanatory element of the process. As we have seen, models that include promotions possess a greater explanatory capacity than those that do not. The consumers brand choice is affected by sales promotions. This fact is outstanding in the measure that the techniques of sales promotion can be used to get concrete objectives. Prior to taking a decision, the consumer will take into account whether or not a promotion exists. Promotions can have as a side effect the consumer acquiring a brand that he or she would not otherwise try. Moreover, sales promotion can help to decide which brand to buy when two brands are equally attractive to the consumer. Sales promotion is a tool that can help manufacturers and/or retailers in the achievement of their objectives. A wide range of sales promotion techniques can be used. For the most part, it seems that promotions based on immediate price reductions are the most frequently used. It has been proved that it is this technique that exerts a greater inuence on the brand choice process, i.e. sales promotion decisively inuences the brand choice process. Specically, of all the techniques that can be employed, it is immediate price reductions (price cuts) that have a more important effect on consumer behaviour. Those sales promotion techniques that provide the best results should be used. Considering the results, it seems that promotions based on price are most effective. This fact is very important, since the manufacturers and/or retailers can invest in promotional actions that are not valued by consumers. It is possible that the consumer perceives a promotion, for example coupons or rebates, but does not modify his or her behaviour. In this case, the manufacturers and/or retailers are investing resources in promotional activities that do not have any effect on the consumer. It is very important to know the consumers preferences and the actions that signicantly inuence consumer behaviour. So, resources invested in sales

promotion campaigns that are not valued by consumers should be diverted towards other promotional activities which are valued by consumers (e.g. price cuts). The present work needs to be extended to other categories of product in which brand choice behaviour could vary. It would also be interesting to analyse the inuence that consumers characteristics have on their reactions to sales promotions (consumption, loyalty, socio-economic or demographic factors). Therefore the present work should be extended to other categories of product in which consumers show other preferences. It should possible to analyse categories of product that are not bought with the same frequency. Also, it would be interesting to consider products where consumers show a strong brand preference. Maybe if categories of products whose buyers are very loyal are considered, another type of sales promotion action would be preferred. This way, coupons or promotions that reward the loyalty could have a bigger effect than price cuts. Also, the characteristics of consumers could be another essential factor. How the reactions of households to sales promotion activities varies according to the level of consumption of the product category could be analysed. It would also be interesting to analyse for a certain category of products how promotional behaviour varies depending on the type of consumer (i.e. loyal or not loyal to a brand). Very revealing results could be achieved: are loyal consumers sensitive to promotions? Do loyal and non-loyal consumers prefer the same type of sales promotion activity?
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Hardie, B.G.S., Johnson, E.J. and Fader, P.S. (1993), Modeling loss aversion and reference dependence effects on brand choice, Marketing Science, Vol. 12 No. 4, pp. 378-94. Kalwani, M.U. and Yim, C.K. (1992), Consumer price and promotion expectations: an experimental study, Journal of Marketing Research, Vol. 29, pp. 90-100. Kalwani, M.U., Yim, C.K., Rinne, H.J. and Sugita, Y. (1990), A price expectations model of customer brand choice, Journal of Marketing Research, Vol. 27, pp. 251-62. Kalyanaram, G. and Little, J. (1994), An empirical analysis of latitude of price acceptance in consumer package goods, Journal of Consumer Research, Vol. 21, pp. 408-18. Kamakura, W. and Russell, G. (1989), A probabilistic choice model for market segmentation and elasticity structure, Journal of Marketing Research, Vol. 26, pp. 379-90. Kopalle, P.K. and Winer, R.S. (1996), A dynamic model of reference price and expected quality, Marketing Letters, Vol. 7 No. 1, pp. 41-52. Krishnamurthi, L., Mazumdar, T. and Raj, S.P. (1992), Asymetric response to price in consumer brand choice and purchase quantity decisions, Journal of Consumer Research, Vol. 19, pp. 387-400. Lam, S.Y., Vandenbosch, M., Hulland, J. and Pearce, M. (2001), Evaluating promotions in shopping environments: decomposing sales response into attraction, conversion, and spending effects, Marketing Science, Vol. 20 No. 2, pp. 194-215. Lattin, J.M. and Bucklin, R.E. (1989), Reference effects of price and promotion on brand choice, Journal of Marketing Research, Vol. 26, August, pp. 299-310. Mayhew, G.E. and Winer, R.S. (1992), An empirical analysis of internal and external reference prices using scanner data, Journal of Consumer Research, Vol. 19, pp. 62-70. Mazumdar, T. and Papatla, P. (1995), Loyalty differences in the use of internal and external reference prices, Marketing Letters, Vol. 6 No. 2, pp. 111-22. Mazumdar, T. and Papatla, P. (2000), An investigation of reference prices segments, Journal of Marketing Research, Vol. 35, pp. 246-58. Mela, C.F., Gupta, S. and Jedidi, K. (1998), Assessing long-term promotional inuences on market structure, International Journal of Research in Marketing, Vol. 15, pp. 89-107. Rajendran, K.N. and Tellis, G. (1994), Contextual and temporal components of reference price, Journal of Marketing, Vol. 56, pp. 22-34. Simonson, I. (1989), Choice based on reason: the case of atraction and compromise effects, Journal of Consumer Research, Vol. 16, pp. 158-74. Simonson, I., Carmon, Z. and OCurry, S. (1994), Experimental evidence on the negative effect of product features and sales promotions on brand choice, Marketing Science, Vol. 13 No. 1, pp. 23-40. Suri, R., Manchada, R.V. and Kohli, C.S. (2000), Brand evaluations: a comparison of xed price and discounted price offers, The Journal of Product & Brand Management, Vol. 9 No. 3, pp. 193-207. Winer, R. (1985), A price model of demand for consumer durables; preliminary developments, Marketing Science, Vol. 4 No. 1, pp. 74-90. Winer, R. (1986), A reference price model of brand choice for frequently purchased products, Journal of Consumer Research, Vol. 13, pp. 250-6. Further reading Voss, G. and Seiders, K. (2003), Exploring the effect of retail sector and rm characteristics on retail price promotion strategy, Journal of Retailing, Vol. 79, pp. 37-52.