Category Archives: Faculty

Where’s the beef on the loss leader strategy?

It’s here, in a series of store-level studies

(Release from the Journal of Retailing)

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 Walton College marketing professor, 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.

Gauri, Dinesh K., et al, An Empirical Analysis of the Impact of Promotional Discounts on Store Performance, Journal of Retailing (September 2017)

Venkatesh Honored as Fellow by Association of Information Systems

Viswanath Venkatesh, distinguished professor in the Department of Information Systems and holder of the George and Boyce Billingsley Chair in Information Systems at the Sam M. Walton College of Business at the University of Arkansas, has been recognized with two major honors by the Association for Information Systems. Continue reading Venkatesh Honored as Fellow by Association of Information Systems

EPIC Spotlight: Tim Riley

A method used by a University of Arkansas finance professor got Tim Riley to thinking.

Riley, a financial economist at the time with the U.S. Securities and Exchange Commission, wondered what would happen if he borrowed an idea from Alexey Malakhov, whose research includes hedge funds, and modified it to see how actively managed mutual funds perform against passively managed investments? Continue reading EPIC Spotlight: Tim Riley

Gauri Study Accepted for Publication in Management Science

gauri-dineshA study by Dinesh K. Gauri, a professor in the marketing department at the Sam M. Walton College of Business and holder of the Wal-Mart Chair in Marketing, has been accepted for publication by Management Science, one of the top journals in the field.

The study, entitled Measuring the Efficiency of Category-Level Sales Response to Promotions, focuses on measuring the efficiency of category-level sales response to promotions across various categories and stores. The study’s authors develop a promotional efficiency frontier model and estimate it using data from multiple sources (point-of-sales data of 20 frequently bought categories across 24 stores of a retail grocery chain spanning millions of transactions, census block level socio-demographic information and data on individual store features from syndicated services).

They find that there are substantial differences in efficiency of category and store sales response across all categories and stores. Their study states that “the variation in efficiency of this sales response can be attributed to specific store and category characteristics such as selling area of store, distance to competition, number of SKUs in the category and average interpurchase time.” The authors mention that understanding of the roles played by these characteristics in impacting the efficiency of sales response can aid managers in devising a strategy that maximizes sales towards different segment of shoppers.

Gauri is publishing the study along with co-authors Minakshi Trivedi, a professor of marketing at the SUNY at Buffalo, and Yu Ma, associate professor of marketing, Desautels Faculty of Management, at McGill University in Montreal, Quebec, Canada.