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Price promotions and brand loyalty: Empirical evidence for the German ready-to-eat cereal market

Janine Empen (University of Kiel, Kiel, Germany)
Jens-Peter Loy (University of Kiel, Kiel, Germany)
Christoph Weiss (Vienna University of Business and Economics, Vienna, Austria)

European Journal of Marketing

ISSN: 0309-0566

Article publication date: 11 May 2015

6607

Abstract

Purpose

This article aims to estimate the relationship between brand loyalty and price promotions on the German yoghurt market. It considers consumer loyalty to various corporate brands and their respective sub-brands to analyze promotional strategies between and within certain corporate brands with a larger loyal consumer segment and a moderate strength of consumer loyalty are well suited for effective price promotions following the idea of loss leader by Lal and Matutes (1994).

Design/methodology/approach

The paper’s approach follows Allender and Richards’ (2012) and extends to explicitly considering the product line management of every manufacturer in the market. In the first step, a random coefficient logit specification is estimated to compute measures of brand loyalty for each brand. In the second step, the relationship between brand loyalty measures and the frequency and depth of price promotions is analysed.

Findings

The results suggest that weaker corporate brands are promoted more aggressively supporting the model hypotheses by Koças and Bohlmann (2008). Within the manufacturer’s product line, sub-brands with a larger loyal consumer segment and a moderate strength of consumer loyalty are more often used for effective price promotions which reflects the idea of loss leading first introduced by Lal and Matutes (1994).

Research limitations/implications

The results are limited to a static relationship between brand loyalty and price promotions. Analyzing the dynamics of the relationship between brand loyalty and price promotions should prove fruitful in enhancing the understanding of retailer strategies and provides additional implications for managerial decisions in retailing.

Practical implications

Managers need to be more aware of the linkages between product line management and promotional strategies. Changes in the product line management may require a redirection of the promotional measures and strategies.

Social implications

Consumer behavior with respect to brand loyalty to some extent determines price promotional strategies of retailers. The promotional strategies provide opportunities to save expenditures, especially for non-loyal and low income households.

Originality/value

Matching and analyzing two detailed (consumer, retail) scanner data sets to investigate the relationship between the measures of brand loyalty and the retailers’ price promotional strategies. Novel is the modeling of two different dimensions of brand loyalty (size and strength) and the consideration of sub-brands. The results clearly show that promotional strategies vary not only between corporate brands but also between sub-brands of the same corporate brand.

Keywords

Acknowledgements

The authors gratefully acknowledge financial support by the German Research Foundation (Project DFG LO 655/6-2).

Citation

Empen, J., Loy, J.-P. and Weiss, C. (2015), "Price promotions and brand loyalty: Empirical evidence for the German ready-to-eat cereal market", European Journal of Marketing, Vol. 49 No. 5/6, pp. 736-759. https://doi.org/10.1108/EJM-08-2013-0433

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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