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Retail-Price Drivers and Retailer Profits

Kellogg School of Management, Northwestern University, Evanston, Illinois
The A. Gary Anderson Graduate School of Management, University of California, Riverside, California 92521
Tuck School of Business at Dartmouth, Hanover, New Hampshire 03755
v-nijs{at}kellogg.northwestern.edu
shuba.srinivasan{at}ucr.edu
koen.h.pauwels{at}dartmouth.edu

What are the drivers of retailer pricing tactics over time? Based on multivariate time-series analysis of two rich data sets, we quantify the relative importance of competitive retailer prices, pricing history, brand demand, wholesale prices, and retailer category-management considerations as drivers of retail prices. Interestingly, competitive retailer prices account for less than 10% of the over-time variation in retail prices. Instead, pricing history, wholesale price, and brand demand are the main drivers of retail-price variation over time. Moreover, the influence of these price drivers on retailer pricing tactics is linked to retailer category margin. We find that demand-based pricing and category-management considerations are associated with higher retailer margins. In contrast, dependence on pricing history and pricing based on store traffic considerations imply lower retailer margins.

Key Words: retail-price drivers; retailer profits; time-series models; generalized forecast error variance decomposition
History: Received: July 21, 2004;

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