We explore how consumer purchases influence subsequent response to product price and promotions, for the same brand and for other brands in the category.  We build on prior research by considering both the brand purchased most recently and whether this purchase occurred during a promotion.  This topic is important because, not only do promotions influence current brand choice, they can also impact subsequent purchases by changing consumer sensitivity to promotional activity.  Thus, although running a promotion may obtain desirable results in the short term, it may also lead to previously unanticipated changes in consumer behavior.  For example, a consumer might exhibit greater price sensitivity toward all brands in a product category after buying a national brand at a promotionally discounted price.  This increases the likelihood the consumer will switch to a lower priced brand, such as the house brand, on the next purchase occasion.  Such choices may lead to lower profits for the manufacturer, but increased profits for the retailer, assuming there are higher margins on store brands.  Thus, possible changes in promotional sensitivity should be taken into account when designing promotional plans, due to the potential impact on profitability.

There are two key bases in marketing theory that anticipate how consumer purchases might influence the response to subsequent promotional activities.  First, usage dominance suggests that, because consumers have salient personal experience with the most recently purchased brand, this brand holds a relative advantage over other available options.  Thus, usage dominance predicts that, after a purchase, the likelihood a consumer will repurchase the same brand is initially high, but decays over time.  Further, because the consumer focuses strongly on recent personal experience with a brand, it is also possible that promotional activities for that brand will have decreased relative impact.  On the other hand, promotion enhancement offers the rationale that responding to a promotion leads to increased salience for all promotional offers, and thus to greater sensitivity to price and promotional activities for all brands in the category. 

We empirically test for the effects of usage dominance and/or promotion enhancement on response to price and promotional activities.  To do this, a hierarchical multinomial logit model is defined – the consumer’s indirect utility for a brand is a function of four marketing mix variables (price, deal depth, in-store displays, and feature advertising) – and includes parameters that allow both usage dominance and promotion enhancement effects to occur.  We estimate the model in four product categories (peanut butter, tuna, margarine, and tissue) using simulated maximum likelihood estimation (SMLE).  Model fit comparisons between the full model and a restricted model (that does not permit either usage dominance or promotion enhancement effects) indicate that the full model provides a better fit across the board; thus, the hypothesized effects are observed.

We find both usage dominance and promotion enhancement effects in all four product categories.  Usage dominance explains a positive and significant consumer tendency to repurchase the same brand and promotion enhancement influences consumer response to both regular price and price cut promotions in all four categories.  In addition, feature advertisements exhibit promotion enhancement effects in three product categories.

In summary, these results indicate that both usage dominance and promotion enhancement can influence consumer response to promotional activities.  The magnitude of the effects must be compared to see which is more influential; in three of the four product categories we examine, promotion enhancement appears to have greater impact than usage dominance.  These findings offer managerial as well as theoretical relevance.  Specifically, the message to retail managers is that promotions of national brands can lead to increased consumer interest in lower priced, smaller, and store brands, which may offer higher profit margins.  Further, neglecting the effects of usage dominance and promotion enhancement can result in understated market shares for such brands.  Manufacturers can benefit from our research by developing a clear understanding of each brand’s promotional effectiveness, through decomposition of the contributions due to usage dominance and promotion enhancement.