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Market-Based Solutions to Vital Economic Issues
Research
Dec 1, 2015

Suppliers Caught in Supermarket Price Wars: Victims or Victors?

Abstract

During retailer-initiated price wars (PWs), hundreds of brands are involved simultaneously, affecting brands’ and retailers’ positioning and ultimately making the performance outcome for individual brands difficult to predict. Likewise, the impact on brand performance after the PW, when prices are restored, is unclear. The authors use a natural experiment approach to track brand sales and shares before, during, and after a long-lasting supermarket PW in the Dutch grocery market. They find that PWs are not truly revenue, sales, or share generators for most brands, unless prices remain reduced permanently by the retailer. Only after the PW, when rivals’ prices are restored and the focal brand’s reduced retail price is maintained, can substantial sales, revenues, and share gains be realized. Moreover, restoring prices without additional price promotion support can severely damage brands’ performance. Overall, national brands can gain share, sales, and revenue, but at the cost of not restoring regular prices, while private labels can benefit even when prices are restored after the PW ends.

Note: Research papers posted on ResearchGate, including any findings, may differ from the final version chosen for publication in academic journals.


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