This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Besanko, D. Articles by Gupta, S. Search for Related Content

Own-Brand and Cross-Brand Retail Pass-Through

Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Graduate School of Business, University of Chicago, Chicago, Illinois 60637
Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853
d-besanko{at}kellogg.northwestern.edu
jean.dube{at}gsb.uchicago.edu
sg248{at}cornell.edu

In this paper we describe the pass-through behavior of a major U.S. supermarket chain for 78 products across 11 categories. Our data set includes retail prices and wholesale prices for stores in 15 retail price zones for a one-year period. For the empirical model, we use a reduced-form approach that focuses directly on equilibrium prices as a function of exogenous supply- and demand-shifting variables. The reduced-form approach enables us to identify the theoretical pass-through rate without specific assumptions about the form of consumer demand or the conduct of a category-pricing manager. Thus, our measurements of pass-through are not constrained by specific structure on the underlying economic model. The empirical pricing model includes costs of all competing products in the category on the right-hand side (not only the cost of the focal brand) and yields estimates of both own-brand and cross-brand pass-through rates.

Our results provide a rich picture of the retailer's pass-through behavior. We find that pass-through varies substantially across products and across categories. Own-brand pass-through rates are, on average, more than 60% for 9 of 11 categories, a finding that is at odds with the claims of manufacturers about retailers in general. Importantly, we find substantial evidence of cross-brand pass-through effects, indicating that retail prices of competing products are adjusted in response to a change in the wholesale price of any given product in the category. We find that cross-brand pass-through rates are both positive and negative. We explore determinants of own-brand and cross-brand pass-through rates and find strong evidence in multiple categories of asymmetric retailer response to trade promotions on large versus small brands. For example, brands with larger market shares, and brands that contribute more to retailer profits in the category, receive higher pass-through. We also find that trade promotions on large brands are less likely than small brands to generate positive cross-brand pass-through, i.e., induce the retailer to reduce the retail price of competing smaller products. On the other hand, small share brands are disadvantaged along three dimensions. Trade promotions on small brands receive low own-brand pass-through and generate positive cross-brand pass-through for larger competing brands. Moreover, small share brands do not receive positive cross pass-through from trade promotions on these larger competitors. We also find that store brands are similarly disadvantaged with respect to national brands.

Key Words: pricing; promotion; retailing; channels of distribution; econometric models
History: Received: July 20, 2001;

This article has been cited by other articles:

				M. Draganska, D. Klapper, and S. B. Villas-Boas A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel Marketing Science, January 1, 2010; 29(1): 57 - 74. [Abstract] [PDF]

				K. L. Ailawadi and B. A. Harlam Findings--Retailer Promotion Pass-Through: A Measure, Its Magnitude, and Its Determinants Marketing Science, July 1, 2009; 28(4): 782 - 791. [Abstract] [PDF]

				G. M. Pofahl and T. J. Richards Valuation of New Products in Attribute Space Am. J. Agr. Econ., May 1, 2009; 91(2): 402 - 415. [Abstract] [Full Text] [PDF]

				E. T. Bradlow Editorial--The Scientific Process at Its Best Marketing Science, May 1, 2008; 27(3): 323 - 323. [Abstract] [PDF]

				J.-P. Dube and S. Gupta Cross-Brand Pass-Through in Supermarket Pricing Marketing Science, May 1, 2008; 27(3): 324 - 333. [Abstract] [PDF]

				S. Gupta Research Note--Channel Structure with Knowledge Spillovers Marketing Science, March 1, 2008; 27(2): 247 - 261. [Abstract] [PDF]

				L. McAlister Comment Cross-Brand Pass-Through: Fact or Artifact? Marketing Science, November 1, 2007; 26(6): 876 - 898. [Abstract] [PDF]

				S. M. Shugan The Editor's Secrets Marketing Science, September 1, 2007; 26(5): 589 - 595. [Abstract] [PDF]

				V. R. Nijs, S. Srinivasan, and K. Pauwels Retail-Price Drivers and Retailer Profits Marketing Science, July 1, 2007; 26(4): 473 - 487. [Abstract] [PDF]

				S. M. Shugan Editorial: Does Good Marketing Cause Bad Unemployment? Marketing Science, January 1, 2007; 26(1): 1 - 17. [Abstract] [PDF]

				K. Pauwels, S. Srinivasan, and P. H. Franses When Do Price Thresholds Matter in Retail Categories? Marketing Science, January 1, 2007; 26(1): 83 - 100. [Abstract] [PDF]

				K. L. Keller and D. R. Lehmann Brands and Branding: Research Findings and Future Priorities Marketing Science, November 1, 2006; 25(6): 740 - 759. [Abstract] [PDF]

				Editorial: Thanks to the Many Individuals Who Make Publication ofMarketing Science Possible Marketing Science, July 1, 2006; 25(4): 293 - 300. [Abstract] [PDF]

				G. J. Tellis and P. H. Franses Optimal Data Interval for Estimating Advertising Response Marketing Science, May 1, 2006; 25(3): 217 - 229. [Abstract] [PDF]

				S. M. Shugan Editorial: Save Research--Abandon the Case Method of Teaching Marketing Science, March 1, 2006; 25(2): 109 - 115. [Abstract] [PDF]

				K. L. Ailawadi, P. K. Kopalle, and S. A. Neslin Predicting Competitive Response to a Major Policy Change: Combining Game-Theoretic and Empirical Analyses Marketing Science, January 1, 2005; 24(1): 12 - 24. [Abstract] [PDF]

				P. A. Naik, K. Raman, and R. S. Winer Planning Marketing-Mix Strategies in the Presence of Interaction Effects Marketing Science, January 1, 2005; 24(1): 25 - 34. [Abstract] [PDF]

				S. Moorthy A General Theory of Pass-Through in Channels with Category Management and Retail Competition Marketing Science, January 1, 2005; 24(1): 110 - 122. [Abstract] [PDF]