The Dynamics of Consumer Response To Price Discounts

The authors examine the nature of dynamic consumer response to promotional price discounts. The approach begins with the promise that consumers form expectations about future price discounting based on their exposure to such activity at the point of purchase. Consumer response is influenced by the disparity between observed discounting activity and the point of reference established by the consumer. The approach differs from existing research in three ways: first, the research is focused entirely on the effects of Promotional price changes; second, a threshold model is used to capture the formation of consumer reference points; and third, the model is extended beyond brand choice to consider the effects of promotional pricing on purchase incidence. The authors calibrate models of brand choice and purchase incidence using IRI scanner panel data on ground coffee for a store-loyal panel. The findings suggest that increased exposure to discount pricing raises consumers’ reference points but does not necessarily decrease the probability of brand choice. As expectations increase, consumers are more likely to buy from the category during deal periods and avoid buying during periods in which the value available in the category is low .