The impact of marketing policy on promotional price elasticities and baseline sales

Looking across studies on the ability of price promotions to increase a brand's sales, one sees that the power of that instrument varies across brands, categories, retail chains, and markets. These differences in promotional price elasticities have been shown to be systematically related to marketing policy. We add to this body of research in two ways. First, we broaden the focus to also consider the relationships between marketing policy and baseline sales. Second, we use an analytical multi-segment model of market response to develop hypotheses about the likely relationships between marketing policy and promotional price elasticities and baseline sales. Using weekly store sales data for three cleaning product categories, we find coefficients consistent with the hypothesized relationships. Interestingly, for almost all elements of the marketing mix we find that those elements that tend to be associated with higher levels of promotional price response tend also to be associated with lower levels of baseline sales. National advertising share of voice is the only element that does not follow this pattern. Higher levels of national advertising tend to be associated with higher levels of promotional price response and higher levels of baseline sales. Managerial implications are discussed.