Direct and indirect effects of retail promotions on sales and profits in the do-it-yourself market

Abstract

In this study, we measure complementary effects of retail promotions for a large number of product pairs. For this, we make use of market basket analysis. We argue that failing to take these cross-effects into consideration, may lead retail managers to severely underestimate the impact of promotional efforts. Moreover, we provide guidelines for optimizing promotional strategies. To this end, we introduce lift, a measure for the strength of a complementary relationship, as a moderator in explaining the variation in complementary effects of retail promotions across product pairs. We show that the stronger the complementary relationship (higher lift), the stronger is the cross-impact of retail promotions. However, in case of simultaneously promoting two complementary products, larger promotional impact is seen when weaker product pairs (lower lift) are considered. (C) 2004 Elsevier Ltd. All rights reserved.