Why the Dynamics of Competition Matter for Category Profitability

Voleti, S and Gangwar, M and Kopalle, P K (2016) Why the Dynamics of Competition Matter for Category Profitability. Journal of Marketing.

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Abstract

Category Management (CM) has becomes a widespread trade practice in recent years. A category manager's decision problem is complex and multi-faceted owing to demand dependencies across products and across time. Extant research on CM has typically focused on one or the other of these dependencies, but seldom both. The authors address this gap in the extant empirical literature on CM by presenting a competition framework that reconciles cross-sectional breadth (large numbers of SKUs in any given period) with longitudinal depth (demand effects across time). The endeavor is to offer retailers a general, realistic and practical CM approach by comprehensively accounting for competitive effects. The authors demonstrate their approach on real-world data in the beer category for a midsize grocery chain in the US Northeast. Upon determining the optimal weekly prices for the entire assortment over 23 weeks, the authors report a profit yield that is 3.30% more than in the benchmark logit model and substantially more than in the retailer's current EDLP pricing policy.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Voleti, SUNSPECIFIED
Gangwar, MUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Category Management, Competition Modeling, Pricing, nested Dirichlet Process, Dynamic Programming
Subjects: Business and Management
Marketing
Depositing User: Veeramani R
Date Deposited: 16 Aug 2016 13:01
Last Modified: 16 Aug 2016 13:01
URI: http://eprints.exchange.isb.edu/id/eprint/499
Publisher URL: http://dx.doi.org/10.1509/jm.15.0304
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/0022-2429/
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