The effect of FMCG pricing strategies in a dynamic context

A recently published research paper exploring the effects of promotional price changes on brands in the fast moving consumer goods (FMCG) industry, and the factors that influence these effects, will be of great interest to managers and marketers keen to ensure that their products maintain a competitive edge.

While much previous research has been made of the cross-brand effects of pricing promotions, the study – Moderating factors of immediate, gross, and net cross-brand effects of price promotions – investigates whether previously established findings hold when consumer and competitive dynamics are taken into account, important factors that have been ignored until now.

The paper, written by <link people dennis-fok>Dennis Fok, Professor of Applied Econometrics at Erasmus School of Economics and member of ERIM, and Csilla Horváth of Radboud University, has been published in the influential Marketing Science journal. It provides novel and practical insights into cross-price elasticities in a dynamic context, and addresses important questions including whether pre-emptive switching from one brand to another occurs as a result of price promotions.

The researchers provide evidence for price and share asymmetries, and neighbourhood price and share effects, even after controlling for consumer and competitive dynamics. Another key finding is the identification of a robust private label/national brand pricing asymmetry, which shows that private labels are especially vulnerable to the promotions of national brands.

To defend against such effects, the researchers advise that retailers offering private label products should look to improve customer loyalty and so build brand equity whilst reducing the perceived quality gap between their own products and national brands.

• Download Moderating factors of immediate, gross, and net cross-brand effects of price promotions from Marketing Science.