Tag Archives: featured

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)

Walton Ph.D. Student Wins Fellowship to Study Rice, Information, Markets

Information moves markets. That’s something every business student understands – or should.

Jessica Darby wrote her honors thesis on the relationship of rice markets and information while she was a University of Arkansas undergraduate. Now, as a doctoral candidate in the university’s Sam M. Walton College of Business, she’s studying ways that timely and accurate information flowing out of the supply chain can help rice farmers in Arkansas and around the world.

Darby researches how rice farmers get their information about markets and how they make decisions based on that information. She’s asking farmers if better sources of information, additional resources and more analytical tools can be developed to help with market decisions.

In spring 2017, Darby gained support for this research by winning a prestigious and highly competitive Adam Smith Fellowship from the Mercatus Center at George Mason University. The one-year fellowship for graduate students – which includes a quarterly stipend – can total up to $10,000. Fellows also are eligible to apply for conference and research support.

“I believe that working with the Mercatus Center will help me develop market-based tools and address relevant policy levers to reduce the information burden for farmers,” Darby said. “I want to articulate the power of markets in agricultural supply chains.”

Her research can also be a powerful tool in helping the farmers and the economy of Arkansas. Arkansas is the largest rice-growing state in the nation, with the crop grown on 1.3 million acres each year, mainly in eastern Arkansas counties stretching from Louisiana to Missouri.

Darby’s interest in commodities such as rice and the behavior of commodity markets was sparked by an internship as a commodity analyst with an Arkansas-based global trading and sourcing company, and a second internship with one of the largest shippers of grain on the inland river system. The latter gave her insight into the role that public information – especially United States Department of Agriculture reports – plays in decisions.

“In both roles, I was responsible for producing regional analysis to determine potential growth and necessary defense strategies to adapt to changing market and political environments,” Darby said.

Darby was introduced to free-market concepts and information’s impact on commodity trading and pricing through a Walton College supply chain class on capitalism and a class on futures and options in the Dale Bumpers College of Agricultural, Food and Life Sciences. The latter class sparked an interest in working with Andrew McKenzie, a professor of agricultural economics and agri-business.

“He introduced me to Milo Hamilton’s book, When Rice Shakes the World,” Darby said. “Hamilton discusses the implications of policies on the functioning of global rice markets and argues for a ‘freer, market-oriented way for rice.’”

McKenzie directed Darby’s honors thesis on rice futures markets. The two published that research in the U of A undergraduate research journal Inquiry and then extended the research. Darby presented this extended research as a paper at the NCCC-134 Applied Commodity Price Analysis, Forecasting and Risk Management Conference. The two then co-authored an article on the topic – “Information Content of USDA Rice Reports and Price Reactions of Rice Futures” – that was published in Agribusiness: An International Journal.

“Our research shows that the USDA provides the rice futures market with important information needed by Arkansas rice mills and farmers to market their crops,” McKenzie said. “The Arkansas Farm Bureau notes that Arkansas farmers produce more than 9 billion pounds of rice each year, which generates billions of dollars to the state’s economy and accounts for approximately 25,000 jobs, crucial to rural communities.”

The impact of such research on Arkansas and its economy inspires Darby to continue to dig into the topic. “It’s important to me that my research connect to industry,” Darby said. “I have to see the practical application for both farmers and agri-businesses – especially those involved in the food supply chains here in Arkansas.”

McKenzie added that, in an era of declining federal budgets, the kind of research he and Darby have produced provides economic justification for the continued publication of USDA reports. Darby said that it also illustrates an opportunity for the private sector to provide additional valuable information.

“Our results undoubtedly show that USDA reports play a vital role in helping futures markets to discover price and that this is particularly important for the U.S. rice market, where there is a paucity of private data and forecasts to supplement government numbers,” McKenzie said. “However, our research also highlights the fact that rice futures are a thinly traded market with low liquidity and volume.”

McKenzie and Darby are currently engaged in potential research to explore factors that may be driving low trading levels, which increases uncertainty for farmers. Darby said the aim is to determine potential solutions to increase volume and open interest through both regulatory changes and private information provided by partners in the supply chain.

Darby earned a B.S.B.A. in economics from the Walton College in 2015 and a Walton M.B.A. in 2016. She says her passion for reading, research and free-market capitalism left no doubt she would enter Walton’s doctoral program right away. Winning the Adam Smith Fellowship is pushing that passion into a whole different realm, though.

“I believe that it will enable me to examine and better articulate the power of markets in global agricultural supply chains,” Darby said, “as well as the power of global agricultural supply chains in the structuring of global markets.”

Information Systems Honor Society Inducts Members

On Tuesday, April 25, the Upsilon Alpha Chapter of the Alpha Iota Delta International Honor Society inducted 23 members into its recently reactivated inaugural class. The University of Arkansas Upsilon Alpha Chapter initiates are:

  • Juniors: Emily Cook, Rae McCarrick, and Stuart Welsch
  • Seniors: Mason Cain, Hannah Huber, Paige Ooton, Sebastian Salonen, Candida Xoumphonephackdy, and Michael York
  • Graduate: Brian Bopp, Timothy Broadaway, Miranda Corwin, Joshua Deshazer, Ashwin Dsouza, Peiwen Duan, Srinivasa Niharika Bhargavi Kavuri, Neels Kulshrestha, Nickalas Lenz, Blake Malpass, Trishala Patne, Terrill Standifer, and Rekha Swaminathan
  • Honorary: David Douglas, Ph.D.

Alpha Iota Delta is the international honor society, formed in 1971 by members of the Decision Sciences Institute, for decision sciences and information systems. The purposes of the honor society are threefold:

  • To confer distinction for academic excellence in the decision sciences and information systems,
  • To promote the infusion of the functional and behavioral areas of administration with the tools, concepts, and methodologies of the decision sciences and information systems, and
  • To promote interest in the disciplines of decision sciences and information systems.

To be eligible for induction, undergraduate students must have:

  • Completed four or more courses in analytics, decision sciences, information systems, or supply chain management.
  • Completed four semesters of college work.
  • An undergraduate GPA of 3.5 or higher.
  • Evidence of service to institution and/or community.
  • High ethical and moral ideals.

Graduate students must have met the same criteria as undergraduate students while also obtaining and maintaining a minimum 4.0 GPA.

Paul Cronan and Susan Bristow officiated the induction ceremony. Cronan, who holds the M.D. Matthews Chair in Information Systems, is the incumbent president of the Alpha Iota Delta International Honor Society. Bristow, assistant department chair in the Department of Information Systems, serves as the faculty adviser for the chapter. This was the inaugural induction ceremony for the recently reactivated Upsilon Alpha Chapter. Cronan presented the chapter with a foundation plaque on behalf of the Alpha Iota Delta International Honor Society.

David Douglas, who holds the Walton Professorship in Information Systems, was inducted as an honorary member of the chapter in recognition of his service to the University of Arkansas and to the profession of information systems.

Contact faculty adviser Susan Bristow at SBristow@walton.uark.edu if you would like more information about the Upsilon Alpha Chapter of the Alpha Iota Delta International Honor Society.