Variability of brand price elasticities across retail stores: Ethnic, income, and brand determinants

Retail pricing decisions are often made with respect to the price sensitivity of shoppers in a retail store or market area. This paper explores how certain brand and consumer characteristics relate to the variability of brand price elasticities across stores belonging to the same chain. The authors measure the price sensitivity of 14 liquor brands sold in 35 store locations. Since the stores operate in a monopoly environment, the analysis is free from the confounds caused by competitive pricing or promotional activity that often hamper retail pricing studies. Also, the monopoly situation provides data that represent a census of brand sales in the categories studied. Results of a two-stage econometric analysis show that brand price elasticity is higher for brands that are promoted more frequently and for brands that have higher market shares. The magnitude of brand price elasticity is also found to be directly related to the household income in a market area and inversely related to the proportion of residents in a market area who are African-American.