THE EFFECT OF PROMOTION ON CONSUMPTION - BUYING MORE AND CONSUMING ITFASTER

The authors empirically demonstrate the existence of flexible consumpt ion rates in packaged-goods products, how this phenomenon can be model ed, and its importance in assessing the effectiveness of sales promoti on. They specify an incidence, choice, and quantity model in which cat egory consumption varies with the level of household inventory. The au thors use two different functions to relate consumption rates to house hold inventory and estimate the models using scanner panel data from t wo product categories: yogurt and ketchup, Both functions provide a si gnificantly better fit than a conventional model, which assumes a cons tant daily usage rate. They also have strong discriminant validity; yo gurt consumption is found to be much more flexible with respect to inv entory than ketchup consumption is. The authors use a Monte Carte simu lation to decompose the long-term impact of promotion into brand switc hing and consumption effects and conclude with the implications of the ir findings for researchers and managers.