Chicago, February 19, 2020 — Researchers from the University of North Carolina, Purdue University, and the University of Chicago published a new paper in the Journal of Marketing that explores differences in consumer sensitivity to marketing mix variables across different grocery retail formats.
The study forthcoming in the March issue of the Journal of Marketing is titled “Marketing Mix Response Across Retail Formats – The Role of Shopping Trip Types” and is authored by Pranav Jindal, Ting Zhu, Pradeep Chintagunta, and Sanjay Dhar.
The U.S. grocery retailing and food services industry has gone through a significant shift in consumer preferences regarding brands and retail formats. Besides supermarkets, grocery purchases also occur in retail formats such as mass merchandisers, drugstores, and convenience stores. This has blurred the traditional associations between product categories and channels. From 2004 to 2010, mass merchandisers have increased their share of dry grocery expenditures from 19% to 25%; meanwhile, the share of traditional grocery stores has declined from 63% to 57%. At the same time, there has been a significant increase in grocery sales at convenience stores compared to supermarkets and mass merchandisers. A new study in the Journal of Marketing explores differences in consumer sensitivity to marketing mix variables across these retail formats. This is increasingly important as food manufacturers vie for additional distribution coverage in non-traditional formats, which not only differ in their wholesale margin, but also in the type of shopping trips consumers make to them.
To explore differences in how brands respond to changes in marketing mix across retail formats, the research team developed a conceptual framework that links retail formats to different types of shopping trips (major versus minor; planned versus unplanned) and relates how sensitivity to marketing mix variables varies across shopping trip types. The conceptual framework defines major and minor trips based on dollar spending, number of items, and number of product categories purchased. In addition, while major trips are always planned, minor trips can be either planned (or fill-in trips) or unplanned. Fill-in trips (or planned minor trips) are made in between major trips and are mostly planned in that the household realizes the need for the trip ahead of time. By contrast, unplanned minor trips arise mostly due to unforeseen circumstances such as running out of a specific item or ingredient that is needed urgently and requires running to the store to purchase.
Each trip is associated with certain fixed (independent of basket size) and variable (based on basket size and category level marketing mix) components of utility. The fixed component of utility is a function of distance to the store, store loyalty, and other factors; the variable component depends on prices, non-price promotions, and product line lengths and the urgency of need. To the extent that consumers make a trade-off between these components for different types of shopping trips, they might favor certain retail formats over others. The analysis uses revealed preference (transactions) data to cluster trips into different types and show that major trips are more likely to be made to supermarkets and mass merchandisers, fill-in trips to drugstores, and unplanned minor trips to convenience stores.
Since consumers expend time and effort to visit a retail format (fixed component), they are unlikely to purchase each product category at the format which gives them highest utility. Further, because of the commute, consumers are less likely to avail of a price discount or a feature at a different format from the one they visit frequently. This implies that in the presence of the fixed component of utility, consumers are likely to be less sensitive to changes in marketing mix variables of individual brands.
The research team studied top ten spending product categories (orange juice, dry dog food, ready-to-eat (RTE) cereal, ground coffee, frozen pizza, refrigerated yogurt, refrigerated milk, heavy duty liquid detergents, toilet tissue, and paper towels) that span four product departments (dry grocery, non-food grocery, dairy, and frozen). The empirical analysis studies the effects of the three marketing mix instruments across different trip types and in four different retail formats (grocery, convenience, drugstore, and mass merchandisers).
Utilizing trip-level information, this study estimates that changing prices and non-price promotions impacts brand shares most on fill-in trips and least on unplanned trips. Linking trip type to the retail format, it shows that changing prices and non-price promotions impacts brand shares least at convenience stores. By contrast, changing line length impacts brand shares most at convenience stores and least at supermarkets and mass merchandisers. The potential implications of the findings are explored in the wake of the recent price increase in P&G products and find that the impact on profits of such a price increase varies by retail format and also that any potential line length change impact profits by at least as much as price changes. Together, these findings highlight the importance of accounting for format level differences in how consumers respond to changes in marketing mix instruments.
Full article and author contact information available at: https://doi.org/10.1177/0022242919896337
About the Journal of Marketing
The Journal of Marketing develops and disseminates knowledge about real-world marketing questions useful to scholars, educators, managers, policy makers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM has played a significant role in shaping the content and boundaries of the marketing discipline. Christine Moorman (T. Austin Finch, Sr. Professor of Business Administration at the Fuqua School of Business, Duke University) serves as the current Editor in Chief.
About the American Marketing Association (AMA)
As the largest chapter-based marketing association in the world, the AMA is trusted by marketing and sales professionals to help them discover what’s coming next in the industry. The AMA has a community of local chapters in more than 70 cities and 350 college campuses throughout North America. The AMA is home to award-winning content, PCM® professional certification, premiere academic journals, and industry-leading training events and conferences.