Researchers from University of Connecticut, Texas A&M University, University of Colorado at Boulder, and University of Florida published a new Journal of Marketing article that examines whether price promotions on some products differentially impact demand for other products depending on their relative locations within a display.
The study, forthcoming in the Journal of Marketing, is titled “ The Negative and Positive Consequences of Placing Products Next to Promoted Products ” and is authored by Christina Kan, Yan (Lucy) Liu, Donald R. Lichtenstein, and Chris Janiszewski.
Consumers select from a variety of competing products in multi-product displays. Some products are discounted while others in close proximity are regularly priced. For example, Costco offers items that are not regularly stocked at a reduced price to train shoppers to enter the store in search of “deals,” as if on a treasure hunt. Finding these deals exposes customers to proximal products in other categories, which allows Costco to capture sales from people not interested in the discounted product.
The key question is: Do price promotions on some products differentially impact demand for other products depending on their relative locations within a display? This new study concludes that the answer is yes.
The researchers say that “When the proximal items (i.e., those placed nearby) and distal items (i.e., those placed farther) are strong substitutes for the promoted item, we find that a price promotion decreases the sales of proximal products relative to distal products. This is known as a negative proximity effect. However, when the proximal and distal items are weak substitutes for the promoted item, the promoted product increases the sales of proximal products relative to distal products. This is known as a positive proximity effect. In this case, the proximal product benefits from the increased attention by virtue of being close to the promoted product.”
The research team finds evidence for these sales patterns across eight studies. In one study, they analyze yogurt sales at a retail grocer. When non-promoted products are strong substitutes for the promoted product, a 1% decrease in the price of the promoted product results in a .25% decrease in sales of proximal products, but there is no change in sales of distal products. However, when non-promoted products are weak substitutes for the promoted product, a 1% decrease in the price of the promoted product results in a .10% increase in sales of proximal products. Again, there is no change in sales for distal products.
The promotion–proximity results provide three insights.
Understanding how attention spills over to proximal products creates several opportunities for marketing managers.
Full article and author contact information available at: https://doi.org/10.1177/00222429231172111
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Journal of Marketing
The Negative and Positive Consequences of Placing Products Next to Promoted Products
12-Apr-2023