In‐Store Experiments to Determine the Impact of Price on Sales

Vishal Gaur · Marshall L. Fisher

72 citations0/0 files storedProduction and Operations Management

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Consumer Market Behavior and Pricing Supply Chain and Inventory Management Forecasting Techniques and Applications

Abstract

This paper describes an experimentation methodology to measure how demand varies with price and the results of its application at a toy retailer. The same product is assigned different price‐points in different store panels and the resulting sales are used to estimate a demand curve. We use a variant of the k‐median problem to form store panels that control for differences between stores and produce results that are representative of the entire chain. We use the estimated demand curve to find a price that maximizes profit. Our experiment yielded the unexpected result that demand increases with price in some cases. We present likely reasons for this finding from our discussions with retail managers. Our methodology can be used to analyze the effect of several marketing and promotional levers employed in a retail store besides pricing.

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References

1988Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Synthesis of Evidence 1991Effects of Price, Brand, and Store Information on Buyers' Product Evaluations 1992Design and Analysis of Experiments 1992An experimental approach to making retail store environmental decisions.2003Statistical Design and Analysis of Experiments 1991Design and Analysis of Experiments, 3rd Ed.1988The Price Elasticity of Selective Demand: A Meta-Analysis of Econometric Models of Sales 1985Do Higher Prices Signal Higher Quality?

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