Measures of Brand Loyalty

Though brand loyalty has been studied extensively in the marketing literature, the relationship between brand loyalty and equilibrium pricing strategies is not well understood. Designing sales pricing strategies involves two key decisions: the percentage reduction in price from the existing price point, and the number or frequency of promotions within a category or for a speci…c product. These decisions, in turn, are critically dependent upon how many consumers can be convinced to switch to a brand by temporarily reducing its price, and how many are instead brand loyal. Theoretical models of how the size and strength of brand loyalty in‡uence optimal promotion strategies have been developed, but there are no rigorous tests of their hypotheses. We test how brand loyalty impacts promotion strategies for a frequently purchased consumer package good category. Our results largely con…rm that retailers often promote many brands simultaneously and that depth and breadth can be complementary. Selected Paper prepared for presentation at the Agricultural & Applied Economics Association 2009 AAEA & ACCI Joint Annual Meeting, Milwaukee, Wisconsin, July 26-29, 2009 Graduate Research Assistant and Morrison Professor of Agribusiness, respectively, Morrison School of Management and Agribusiness, Arizona State University, 7001 E. Williams Field Rd. Bldg. 130, Mesa, AZ. 85212. (480) 727-1488, Fax: (480) 727-1961, email: [email protected]. Support from the Economic Research Service of the USDA is gratefully acknowledged. Copyright 2009. Please do not cite or quote without permission.