The database is Dominick's Finer Food Database from the university of Chicago graduate school of business. We considered the bath tissue category. There are 118 products and 15 brands, including 1 store brand. Figure 5 shows the number of the products according to the different size. Obviously, the competition is the most intense in 4-roll market, which is followed by 1-roll market, and totally occupied about 90% market share in the category. The store brands, called DOM, launched products in 1-roll, 4-roll, 12-roll and 24-roll market.
Some people may think that entering the market which has fewer competitors is the best strategy for the store brand. In fact, it is not true. Fewer competitors in the market can refer to less demand, especially for the mature product, like the bath tissue.
Figure 6 shows the distribution of the unit prices (for a single roll) within each package and the boxplot of all the unit prices. The distribution of the unit prices within 4-roll market is the most dispersive due to the intense competition. Overall, 50 percent of the unit prices converge on the middle-low position. In other words, most products are positioned in low prices, and consumers already have many choices of low-price products. This is maybe not good for the store brand, DOM, unless it can provide a much lower price. However, the unit prices of DOM are not always the lowest. In 4-roll market, its unit price is near the middle.
The top 5 national brands in the category are SCOTT, CHARMIN, QUILTED NORTHERN, COTTONELLE and KLEENEX in order. The brand share of SCOTT doubles that of CHARMIN. Surprisingly, DOM still own 7.7% brand share which is a little larger than that of COTTONELLE and KLEENEX, even it introduced less products than those two national brands. The potential of the store brand can be proved here. Consistent with the implication in table 4, 1-roll and 4-roll are expected to be the most popular packages (see table 2).
The amount of the products
Figure 3
The distribution of the products
Size (roll)
Figure 4
The distribution of the unit prices (for a single roll) within each package
The unit price
Size (roll)
Our final dataset ranges from August 8, 1981 to September 16, 1993 and covers the top 13 national brand products and 1 best-selling store brand product, totally 72.3% market share (see table 3). These national brands are SCOTT, CHARMIN, COTTONELLE, QUILTED NORTHERN, WHITE CLOUD and KLEENEX. Our main idea is to sketch complicated interactions caused by promotions. Hence, we didn’t consider any detailed characteristics of products, like different packages. However, for commodity, products are highly homogeneous.
Even those in different packages can also interact with each other. For instance, they may hold complementary relationship. This dataset indeed displays two factors which can help the store brand succeed. First, there are so many national brands in the market --- the 13 products belonged to 6 national brands. We already referred to this point in chapter 2 (Hoch and Banerji, 1993). Second, the gap of the sales volume between the no.1 and no.2 products is very large, about a half of the volume of the no.2 product. The leader of the market is very strong. It is more beneficial for store brand to mimic the strong leader. We will talk about this in later chapter.
Brand Amount of products Brand share The most popular package
SCOTT 11 39% 1 roll
CHARMIN 26 17% 4 roll
QUILTED
NORTHERN 19 14% 4 roll
COTTONELLE 15 7.5% 4 roll
KLEENEX 17 4.4% 4 roll
DOM (store brand) 7 7.7% 1 roll
Table 2
The top 5 national brands in the category and store brand
Product Sales volume Package Unit price (for single roll) SCOTT WHITE BATH TISSUE 3,363,686 1 roll $0.67 CHARMIN WHITE BATH TISSUE 1,833,799 4 roll $0.32 SCOTT BEIGE BATH TISSUE 1,369,771 1 roll $0.68 SCOTT PINK BATH TISSUE 1,279,743 1 roll $0.68 SCOTT SINGLE BATH TISSUE 1,182,520 1 roll $0.68 COTTONELLE DECOR. BATH TISSUE 1,123,945 4 roll $0.37 CHARMIN YEL/BLU BATH TISSUE 1,101,453 4 roll $0.74 NORTHERN WHITE BATH TISSUE 1,030,526 4 roll $0.40 NORTHERN SOFT PRINTS BATH TISSUE 955,176 4 roll $0.40 WHITE CLOUD WHITE BATH TISSUE 935,914 4 roll $0.40 COTTONELLE WHITE BATH TISSUE 929,825 4 roll $0.40 SCOTT YELLOW BATH TISSUE 923,072 1 roll $0.89
KLEENEX BATH WHITE 817,941 4 roll $0.37
DOM WHITE BATH TISSUE (store brand) 770,378 1 roll $0.59
Brand Brand share
SCOTT 33.3%
CHARMIN 12%
COTTONELE 8.4%
QUILTED NORTHERN 8.1%
WHITE CLOUD 3.8%
KLEENEX 3.3%
DOM (store brand) 3.1%
Table 3
The top 13 national brand products
and the best-selling store brand product (1991.8.8 ~ 1993. 9.23)
4.2 Subsystems
Recall that we separated these products into four groups according to the result of the unit root test, and the null hypothesis of this test is that the series is evolving, with the unit root (see appendix 1). Every group can be treated as a subsystem in this market, and owns different characteristics (see figure 7)：
1. Goup1.
Group1 is the biggest. They hold their sales volumes and price discounts in the long run. It refers that any short-term impacts caused by someone else will vanish at last, no matter in the sales or price discounts. This is a very stable subsystem. Connecting with marketing concept, group 1 looks like a niche market. Each one has its own domain, which may be small but a stable one. These products all could be small “cash cows” for their companies. Here, No.2 obviously is a nearly perfect product, because of its high sales volume and stable performance.
2. Group2
No.10 and No.13 are located in group2. In the long run, their sales volumes are still fluctuant. Even if their price promotions are given in a constant state as well, like those in group1, unfortunately, they cannot control their sales volumes, because of their weak market power. The stable price discounts also presumably resulted from the lack of the promotion budget, because of their unstable sales. This arena could be a vicious circle. If these products keep staying in this condition, they might become “dogs”.
3. Group3
Products in group3 are especially attention-getting, for containing the best seller of national brands and store brand. It may be a little strange, but this is relevant to the
positioning strategy of the store brand, which also generated the evolving average price index series, like the no.1 national product. However, it shouldn’t be neglected that the store brand product could hold stable sales. Apparently, the store brand is still able to have its own consumers who will be loyal for a long time, like the national brands. In my opinion, consumers are transforming their store loyalty into the brand loyalty to the store brand. This process is still moving forward. It can be supported by the optimistic outcome of the research study of PLMA in section 1.1.
Except No.2, group3 embraced the top 5 products of national brands. On the one hand, the changing price promotion strategies of these powerful national brands indeed have substantial impacts on the other brands, and this could be one of the purposes of their price promotions.
They use unexpected price discounts to scare the small brands. On the other hand, their sales volumes won’t be shaken in the long run, like their leading positions in the market.
4. Group4
Conspicuously, there is no product in group4. Given diverging sales and price discounts, everything in this subsystem is in an uncertainty, or chaos. This will happen to new products which just launched into the market. They are not able to settle down immediately and lack of information to make a decision for their price promotion strategies.
Group1
No.2 CHARMIN WHITE BATH TISSUE No.6 COTTONELLE DECOR. BATH TISSUE No.7 CHARMIN YEL/BLU BATH TISSUE No.8 NORTHERN WHITE BATH TISSUE No.9 NORTHERN SOFT PRINTS BATH TISSUE No.11 COTTONELLE WHITE BATH TISSUE No.12 SCOTT YELLOW BATH TISSUE
Group2
No.10 WHITE CLOUD WHITE BATH TISSUE No.13 KLEENEX WHITE BATH TISSUE
Group3
No.1 SCOTT WHITE BATH TISSUE No.3 SCOTT BEIGE BATH TISSUE No.4 SCOTT PINK BATH TISSUE No.5 SCOTT SINGLE BATH TISSUE No.S DOM WHITE BATH TISSU
Group4
Note：
No.1 to No.13 ： the products of the national brands, standing for the rank of the total product sales from August 8, 1981 to September 16, 1993
No.S ：the product of store brand
The logarithm of the product sales (LS)
Evolving
Stable Evolving
Stable The logarithm of the average price index
(LAPI)
Figure 5
The illustration of the grouped products
As a whole, most of these products are situated in left side, possessing stable sales when time passed by, and no products are situated in group4. These phenomena are matched with features of commodity categories, whose sales volume are fixed in a certain size and new products are very few.
In the end, there are totally four models in this research. The procedure of constructing our models is as follow：
1. Three models are applied to three groups, a VAR model for group1 and two VEC models for group2 and group3.
2. With a stable status, group1 is a close subsystem. It doesn’t interact with the other subsystems. But, with evolving series, group2 and group3 are open subsystems. The cross-subsystem effects might exist. To find out possible causes of the instability of the sales and price discounts inside these two groups, we also combined group2 and group3, named group2-3, to build another VEC model.
For example, the equations of No.2 which were estimated by a VAR model in group1 are as follows:
And, the equations of No.1 which were estimated by a VEC model in group2-3 are as follows:
where E2-3-2 and E2-3-3 are both adjustment parameters.
LSNo.2 = 0.612*LSNo.7(-1) + 0.265*LAPINo.8(-1) - 0.157*LAPINo.9(-1) + 0.517 (4) LAPINo.2 = 0.508*LAPINo.7(-1) - 0.319*LSNo.11(-1) + 0.309*LSNo.12(-1) + 0.56 (5)
△ LSNo.1= -1.705*(E2-3-3) (6)
△ LAPINo.1= 0.012*(E2-3-2) + 0.163*(E2-3-3) (7)