C. Hypotheses
IV. Results
TABLE 9 un-standardized regression coefficients pertaining to brand substitution and complementary effects: high price brand
Independent variables affect sales of
I.V.
Tooth-brush Tooth-pasteCO OB CR KCO KOB KTO
CO
-4.01265*** -0.74387 -0.69059 -0.69855 0.72392** -1.13796OB
-1.87465 -12.28643*** 0.13324 0.73054 0.41935 2.28050*CR
1.95698* -1.48930* -4.79020*** -0.22362 0.22077 -1.04523KCO 11.24828 -18.87500**
1.96878 4.49549 -2.00635 -15.08916KTO
0.37944 1.33600 -3.06794** 1.04178 0.12853 0.70934***KOB
4.06715 4.94271* 1.35682 4.49549 -3.73944*** 0.70934**F
3.62*** 15.69*** 12.55*** 0.26 2.46** 3.18***R^
0.04 0.15 0.12 0.003 0.03 0.03* p<0.10. ** p<0.05. *** p<0.01.
TABLE 10 cross elasticity: high price brand
Independent variables affect sales of I.V.
Tooth-brush Tooth-paste TotalCO
-5.44710*** -1.11260 -6.55970***OB
-14.02784*** 3.43038 -10.59746**CR
-4.32253*** -1.04807 -5.37059**KCO -5.65794 -12.60002
-18.25796KTO -1.35249
-4.31080 -5.66329KOB 10.36668* 0.35900 10.72568
F
6.51*** 0.79 3.08***R^
0.07 0.01 0.03* p<0.10. ** p<0.05. *** p<0.01.
TABLE 11 correlation matrix: high price brand
CO OB CR KCO KTO KOB
CO
1OB
0.11152*** 1CR
-0.19423*** -0.01573 1KCO
-0.27334*** 0.05646 -0.22230*** 1KTO
0.20533*** -0.05469** 0.14519*** -0.50990*** 1KOB
0.06102*** 0.11671*** -0.10651*** 0.15344*** -0.23934*** 1* p<0.10. ** p<0.05. *** p<0.01.
TABLE 12 un-standardized regression coefficients pertaining to brand substitution and complementary effects: low price brand
Independent variables affect sales of
I.V.
Tooth-brush Tooth-pasteBU OB PE KCR KCL KCO
PE
1.82597** 0.88746 -9.42893*** -1.90476 3.39055 2.35186BU
-2.23360*** -0.02169 0.12412 -0.85112 -0.46530 -0.85653**OB
-3.20102*** -15.56952*** 0.77781** 7.82740*** -4.76324*** -4.26724***KCR -1.61840*** 0.27128
-0.42014* -38.87343*** 5.65675*** 4.81442***KCL -0.97797 -0.70307 1.82145 24.44965***
-14.22192** -10.25474*KCO 0.09022 2.23207 -2.17173 -16.15968**
-14.18679** -24.52308***F
58.96*** 84.65*** 62.06*** 139.78*** 97.49*** 176.66***R^
0.11 0.15 0.11 0.22 0.17 0.26p<0.10. ** p<0.05. *** p<0.01.
TABLE 13 cross elasticity: low price brand
Independent variables affect sales of I.V.
Tooth-brush Tooth-paste TotalBU
-2.13117*** -2.17295** -4.30412***OB
-17.99273*** -1.20308 -19.19581***PE
-6.71549*** 3.83765 -2.87784KCR -1.76726*** -28.40227*** -30.16952***
KCL 0.14041 -0.02701 0.11340 KCO 0.15056 -54.86955*** -54.71899***
F
83.53*** 103.54*** 89.75***R^
0.15 0.17 0.15* p<0.10. ** p<0.05. *** p<0.01.
TABLE 14 correlation matrix: low price brand
BU OB PE KCR KCL KCO
BU
1OB
0.24219*** 1PE
0.01553 -0.00423 1KCR
0.06122*** -0.22968*** -0.10195*** 1KCL
0.12730*** -0.19588*** -0.12627*** -0.19553*** 1KCO
0.12728*** -0.19553*** -0.12553*** 0.34968*** 0.98453*** 1* p<0.10. ** p<0.05. *** p<0.01.
A. Promotional effects
H1 and H2 state that price promotions on a brand stimulate brand sales. The hypothesized sign associated with the relationship is negative – that is, as prices decrease (increase), sales increase (decrease). The results indicate that price promotions had a significant impact on brand sales for all promoted brands. In this type of research, collinearity may exits to reduce our explanation. TABLE 10 and TABLE 13 show cross elasticity. TABLE 11 is the correlation matrix for high price level brands, and TABLE 14 is for low price level brands. The finding shows that the data support H1 and H2, that is, retail price promotional activities conducted on a brand of high and low price level have a significant positive impact on sales of the promoted brand, expect for high price brands (KCO and KTO) in the toothpaste category. Over all speaking, in the tooth brush and toothpaste category, as prices decrease (increase), sales increase (decrease).
B. Brand substitution effects
H3 states that price promotions on one brand of high price level have a positive impact on sales on substitute brands in the category, and H4 states that price promotions on one brand of low price level have a negative impact on sales on substitute brands. The hypothesized sign associated with this relationship is positive – that is, high (low) prices on one brand mean high (low) sales of substitute brands. In low price level of the tooth brush category, for example, PE gained sales at the expense of OB (TABLE 12 and TABLE 13). In particular, we find a strong correlation between KCL price and KCO price (TABLE 14). Therefore, it must be careful to explain the brand substitution effect of KCL and KCO.
The results show that the number of substitution effects varied among product category and among brands of high (low) price level. For example, for low price level brands, significant substitution effects were found in 67% of possible cases when price promotions were conducted in tooth brush category, whereas significant substitution effects were found in 100% of the cases in toothpaste. For high price level brands, only price promotions on CR toothbrush resulted in significant decreases in sales of CO tooth brush in high price level, whereas there is no significant evidence to indicate that price promotions impact on sales of brand substitutes in toothpaste category. The overall pattern of results provides modest rejects
H3 but supports H4, that is, price promotions on one brand of high price level have a negative impact on sales on substitute brands in the category, and price promotions on one brand of low price level have a positive impact on sales on substitute brands.
So far as we have seen that there are several interesting substitution patterns. First, most of the substitution effects were asymmetrical, as one brand built sales at the expense of another brand but did not lose sales as a result of that brand’s price promotion activities. For example, for low price level brands, price promotion on PE tooth brush significantly reduced sales of BU tooth brush, yet price promotion on BU did not significantly reduce sales of PE tooth brush. Only in toothpaste of low price level, price promotion on KCR toothpaste significantly reduced sales of KCL toothpaste, and price promotion on KCL toothpaste significantly reduced sales of KCR toothpaste as well. Second, price promotions appear to be effective in enhancing substitution of low unit price brands in the toothpaste category. That is very different from Walters’s study. In 1991, Walter’s study indicates that in no instance did a low market share brand gain sales at the expense of a brand with higher market share. But in our study, KCR toothpaste is the popular brand with high market share in toothpaste category, and price promotions enabled KCL toothpaste, a brand with lower market share and lower unit price, to gain sales at the expense of KCR toothpaste. And PE toothpaste is at the same situation. Hence, price promotion appears to be an effective tool for brands of low unit price in their categories. The overall pattern of results provides modest rejects H3 but supports H4.
C. Use complementary effects
The hypothesized sign associated with this relationship is negative (i.e., low prices on a brand mean high sales of complementary products). H5 posits that price promotions on a high price level brand have a significant positive impact on sales of brand complements to the promoted brand. And H6 posits that price promotions on a low price level brand have a significant positive impact on sales of brand complements to the promoted brand.
As brand substitution effects, the results show that the number of substitution effects varied among product category and among brands of high (low) price level. For example, for
level brands, significant substitution effects were found in 67% of possible cases when price promotions were conducted in tooth brush category, whereas there is no significant evidence to indicate that price promotions impact on sales of brand substitutes in toothpaste category.
The patterns of results pertain to complementary effects provides some interesting insights into price promotional effects. First, like substitution effects, substitution effects were not symmetrical. That is, in toothpaste of low price level, price promotion on KCR toothpaste significantly increased sales of BU tooth brush, and price promotion on BU toothpaste do not increase sales of KCR toothpaste as well. Second, price promotions did not appear to enhance complementary purchase of high unit price brands. Hence, price promotion appears to be an effective tool for complementary purchase of low unit price in their categories but do not useful for complementary purchase of high unit price. The overall pattern of results provides modest reject H5 but support H6.