THE VARIATION OF RETAIL PASS-THROUGH WITH STORE-BRAND ENTRY AND ITS DETERMINANTS – EVIDENCE FROM SCANNER DATA

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KU, F. K. (2013). THE VARIATION OF RETAIL PASS-THROUGH WITH STORE-BRAND ENTRY AND ITS DETERMINANTS – EVIDENCE FROM SCANNER DATA. Innovative Journal of Business and Management, 2(05). Retrieved from https://innovativejournal.in/index.php/ijbm/article/view/4
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Abstract

Issues related to retail pass-through receives much attention of both academics and business practitioners. Both analytical and empirical works have been done to characterize and documents the retail pass-through rates. However, little attention has been paid to the change of retail pass-through when a retailer introduces a store brand. Using evidence from scanner data, we investigate empirically the effects of store brand entry on retail passâ€through. We show that the entry of store brand is generally accompanied by reductions in retail passâ€through and that there are substantial variations in the reductions. We then examine the determinants of the magnitude of fall in pass-through, and we find evidence that the variations in pass-through changes are related to brand-specific and manufacturer-specific characteristics. In particular, retail pass-through reduces by a smaller magnitude for brands offering larger product varieties, belonging to a dominant manufacturer, having a greater margin against the retailer, and positioning at the higher-tier of market.

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References

1. Ailawadi, K. and Harlam, B. (2004) “An Empirical Analysis of the Determinants of Retail Margins: the Role of Store Brand Share.” Journal of Marketing, 68, 147-165. 2. Ailawadi, K. and Harlam, B. (2009) “Retailer Promotion Pass-Through: A Measure, Its Magnitude, and Its Determinants”. Marketing Science 28, 4, 782-794. 3. Armstrong, KM. (1991) “Retail Response to Trade Promotion: An Incremental Analysis of Forward Buying and Retailer Promotion.” Unpublished doctoral dissertation, School of management, University of Texas at Dallas, Dallas, TX. 4. Berry ST. (1994) “Estimating Discrete-Choice Models of Product Differentiation.” RAND Journal of Economics 25: 242–262. 5. Berry, S. T., J. Levinshon, and A. Pakes. (1995) “Automobile Prices in Market Equilibrium.” Econometrica, 60, 4, 841-890. 6. Besanko, D., J-P Dube, and S.Gupta. (2003) “Competitive Price Discrimination Strategies in a Vertical Channel.” Management Science, 49, 9, 1121-1138. 7. Besanko, D., J-P Dube, S. Gupta. (2005) “Own-Brand and Cross-Brand Retail Pass-Through.” Marketing Science, 24, 1, 123-137. 8. Besanko, D., S. Gupta, D. Jain. (1998) “Logit Demand Estimation Under Competitive Pricing Behavior: An Equilibrium Framework.” Management Science. 44,11, 1533–1547. 9. Bonfrer, A. and Chintagunta, P. (2004) “Store Brands: Who Buys Them and What Happens to Retail Price When They Are Introduced?” Review of Industrial Organization, 24, 2, 195-218. 10. Bulow, J., and P. Pfleiderer. (1983) “A Note on the Effect of Cost Changes on Prices.” Journal of Political Economy, 91, 1, 182-185. 11. Busse, H., Silva-Risso, J. and Zettelmeyer, F. (2006) “$1,000 Cash Back: the Pass-Through of Auto Manufacturer Promotions.” American Economic Review, 96, 4, 1253-1270. 12. Chevalier, J. , Kashyap, A, and Rossi, P. (2003) “Why Don’t Prices Rise During Periods of Peak Demand: Evidence from Scanner Data.” American Economic Review, 93, 1, 15-37. 13. Chevalier, M. and Curhan, R. (1976) “Retail Promotions as a Function of Trade Promotions: a Descriptive Analysis.” Sloan Management Review, 18, 3, 19-32. 14. Chintagunta, P. (2002) “Investigating Category Pricing Behavior at a Retail Chain.” Journal of Marketing Research 39, 141-154. 15. Chintagunta, P., Bonfrer A., I. Song. (2002) “Retailer Demand and Pricing with Store-Brand Introduction.” Management Science, 48, 10, 1242-1267 16. Connor, John M., Everett B. Peterson. (1992) “Market Structure Determinants of National Brand-Private Label Price Differences of Manufactured Food Products.” Journal of Industrial Economics, 40, 157–171 17. Curhan, R. and Kopp, R. (1987) “Obtaining Retailer Support for Trade Deals.” Journal of Advertising Research, Dec-Jan, 51-60 18. Dreze, X., and D. Bell (2003) “Creating Win-Win Trade Promotions: Theory and Empirical Analysis of Scan-Back Trade Deals.” Marketing Science 22, 1, 16-39 19. Gabrielsen, T. and Sorgard, L. (2007) “Private Labels, Price Rivalry, and Public Policy.” European Economic Review, 51, 403-424 20. Geylani, T., Jerath, K. and Zhang, J. (2009) “The Impact of "One-Stop Shopping" on Competitive Store Brand Strategy.” Working paper 21. Lal, R., and Narasimhan C., (1996), “The Inverse Relationship Between Manufacturer and Retailer Margins: a Theory.” Marketing Science, 15, 2, 132-151 22. McAlister, L. (2007) “Cross-Brand Pass-Through: Fact or Artifact?” Marketing Science, 16, 3, 185-207 23. Meza, S. and Sudhir, K. (2006) “Pass-Through Timing.” Quantitative Marketing and Economics, 4, 4, 351 24. Moorthy, S. (2005) “A General Theory of Pass-Through in Channels with Category Management and Retail Competition.” Marketing Science, 24, 1, 110–122. 25. Morton, S. and Zettelmeyer, F. (2004) “The Strategic Positioning of Store Brands in Retailer-Manufacturer Negotiations”. Review of Industrial Organization, 24, 2, 161-194 26. Nevo, A. (2001) “Measuring Market Power in the Ready-to-Eat Cereal Industry.” Econometrica, 69, 2, 307-342. 27. Nevo, A. and Wolfram, C (2002) “Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals.” RAND Journal of Economics, 33, 2, 319-339 28. Nijs, V., Misra, K., Anderson, E., Hansen, K. and Krishnamurthi, L. (2010) “Channel Pass-through of Trade Promotions”. Marketing Science, 29, 2, 250-267 29. Pauwels K. and Srinivasan S. (2004) “Who Benefits from Store Brand Entry?” Marketing Science, 23, 3, 364-390 30. Pauwels, K. (2007) “How Retailer and Competitor Decisions Drive the Long-Term Effectiveness of Manufacturer Promotions for Fast Moving Consumer Goods.” Journal of Retailing, 83, 3, 297-308 31. Soberman, D. and Parker, P. (2006) “The Economics of Quality-Equivalent Store Brands.” International Journal of Research in Marketing, 23, 2, 125-139 32. Sudhir, K. (2001) “Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer.” Marketing Science, 20, 3, 244–264 33. Tyagi, R. (1999) “A Characterization of Retailer Response to Manufacturer Trade Deals.” Journal of Marketing Research, 36, 510-516 34. Walters, R. (1989) “An Empirical Investigation into Retailer Response to Manufacturer Trade Promotions. “ Journal of Retailing, 65, 3, 46-62

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References

1. Ailawadi, K. and Harlam, B. (2004) “An Empirical Analysis of the Determinants of Retail Margins: the Role of Store Brand Share.” Journal of Marketing, 68, 147-165.
2. Ailawadi, K. and Harlam, B. (2009) “Retailer Promotion Pass-Through: A Measure, Its Magnitude, and Its Determinants”. Marketing Science 28, 4, 782-794.
3. Armstrong, KM. (1991) “Retail Response to Trade Promotion: An Incremental Analysis of Forward Buying and Retailer Promotion.” Unpublished doctoral dissertation, School of management, University of Texas at Dallas, Dallas, TX.
4. Berry ST. (1994) “Estimating Discrete-Choice Models of Product Differentiation.” RAND Journal of Economics 25: 242–262.
5. Berry, S. T., J. Levinshon, and A. Pakes. (1995) “Automobile Prices in Market Equilibrium.” Econometrica, 60, 4, 841-890.
6. Besanko, D., J-P Dube, and S.Gupta. (2003) “Competitive Price Discrimination Strategies in a Vertical Channel.” Management Science, 49, 9, 1121-1138.
7. Besanko, D., J-P Dube, S. Gupta. (2005) “Own-Brand and Cross-Brand Retail Pass-Through.” Marketing Science, 24, 1, 123-137.
8. Besanko, D., S. Gupta, D. Jain. (1998) “Logit Demand Estimation Under Competitive Pricing Behavior: An Equilibrium Framework.” Management Science. 44,11, 1533–1547.
9. Bonfrer, A. and Chintagunta, P. (2004) “Store Brands: Who Buys Them and What Happens to Retail Price When They Are Introduced?” Review of Industrial Organization, 24, 2, 195-218.
10. Bulow, J., and P. Pfleiderer. (1983) “A Note on the Effect of Cost Changes on Prices.” Journal of Political Economy, 91, 1, 182-185.
11. Busse, H., Silva-Risso, J. and Zettelmeyer, F. (2006) “$1,000 Cash Back: the Pass-Through of Auto Manufacturer Promotions.” American Economic Review, 96, 4, 1253-1270.
12. Chevalier, J. , Kashyap, A, and Rossi, P. (2003) “Why Don’t Prices Rise During Periods of Peak Demand: Evidence from Scanner Data.” American Economic Review, 93, 1, 15-37.
13. Chevalier, M. and Curhan, R. (1976) “Retail Promotions as a Function of Trade Promotions: a Descriptive Analysis.” Sloan Management Review, 18, 3, 19-32.
14. Chintagunta, P. (2002) “Investigating Category Pricing Behavior at a Retail Chain.” Journal of Marketing Research 39, 141-154.
15. Chintagunta, P., Bonfrer A., I. Song. (2002) “Retailer Demand and Pricing with Store-Brand Introduction.” Management Science, 48, 10, 1242-1267
16. Connor, John M., Everett B. Peterson. (1992) “Market Structure Determinants of National Brand-Private Label Price Differences of Manufactured Food Products.” Journal of Industrial Economics, 40, 157–171
17. Curhan, R. and Kopp, R. (1987) “Obtaining Retailer Support for Trade Deals.” Journal of Advertising Research, Dec-Jan, 51-60
18. Dreze, X., and D. Bell (2003) “Creating Win-Win Trade Promotions: Theory and Empirical Analysis of Scan-Back Trade Deals.” Marketing Science 22, 1, 16-39
19. Gabrielsen, T. and Sorgard, L. (2007) “Private Labels, Price Rivalry, and Public Policy.” European Economic Review, 51, 403-424
20. Geylani, T., Jerath, K. and Zhang, J. (2009) “The Impact of "One-Stop Shopping" on Competitive Store Brand Strategy.” Working paper
21. Lal, R., and Narasimhan C., (1996), “The Inverse Relationship Between Manufacturer and Retailer Margins: a Theory.” Marketing Science, 15, 2, 132-151
22. McAlister, L. (2007) “Cross-Brand Pass-Through: Fact or Artifact?” Marketing Science, 16, 3, 185-207
23. Meza, S. and Sudhir, K. (2006) “Pass-Through Timing.” Quantitative Marketing and Economics, 4, 4, 351
24. Moorthy, S. (2005) “A General Theory of Pass-Through in Channels with Category Management and Retail Competition.” Marketing Science, 24, 1, 110–122.
25. Morton, S. and Zettelmeyer, F. (2004) “The Strategic Positioning of Store Brands in Retailer-Manufacturer Negotiations”. Review of Industrial Organization, 24, 2, 161-194
26. Nevo, A. (2001) “Measuring Market Power in the Ready-to-Eat Cereal Industry.” Econometrica, 69, 2, 307-342.
27. Nevo, A. and Wolfram, C (2002) “Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals.” RAND Journal of Economics, 33, 2, 319-339
28. Nijs, V., Misra, K., Anderson, E., Hansen, K. and Krishnamurthi, L. (2010) “Channel Pass-through of Trade Promotions”. Marketing Science, 29, 2, 250-267
29. Pauwels K. and Srinivasan S. (2004) “Who Benefits from Store Brand Entry?” Marketing Science, 23, 3, 364-390
30. Pauwels, K. (2007) “How Retailer and Competitor Decisions Drive the Long-Term Effectiveness of Manufacturer Promotions for Fast Moving Consumer Goods.” Journal of Retailing, 83, 3, 297-308
31. Soberman, D. and Parker, P. (2006) “The Economics of Quality-Equivalent Store Brands.” International Journal of Research in Marketing, 23, 2, 125-139
32. Sudhir, K. (2001) “Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer.” Marketing Science, 20, 3, 244–264
33. Tyagi, R. (1999) “A Characterization of Retailer Response to Manufacturer Trade Deals.” Journal of Marketing Research, 36, 510-516
34. Walters, R. (1989) “An Empirical Investigation into Retailer Response to Manufacturer Trade Promotions. “ Journal of Retailing, 65, 3, 46-62

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