Frequency versus Depth: How Changing the Temporal Process of Promotions Impacts Demand for a Storable Good

Abstract

Is changing the frequency at which promotions are offered more or less effective at increasing quantity and revenue than changing promotional depth? To answer this question, a forward-looking dynamic structural model of consumer stockpiling behaviour is estimated using scanner data for a storable product category. Counterfactual simulations from the model imply that although increasing promotional frequency and depth are both effective tools for increasing quantity sold and revenue, increasing the depth of discounts is a more effective strategy per dollar spent on promotions. Increasing depth while decreasing frequency is even more effective than increasing depth on its own.