Who is in Control? Building Hierarchy in the Dynamics of Marketing Mix Variables
Price and promotion are common marketing mix variables, which supermarket-stores use to affect their sales. However, not only own marketing mix determine the sales, but also external factors, including marketing mix of the competitors. When the stores try to influence their own sales, they are countered by the competitors’ reactions. To adjust optimally, the retailing managers need to know how the competitors react. This strongly depends at which level of retailing-hierarchy these adjustments are being made.
In this paper, we use data on lemonades sold in major Dutch-supermarkets, to illustrate that this responsibility strongly depends on the chain and the brand. By using a dynamic hierarchical factor model, we show how to predict the marketing mix, helping managers to know more about the competition. The extracted factors at different levels can describe and predict sale variations. Impulse response analyses show adjustments of marketing mix variables in case of unforeseen shocks to the market, identifying robust brands and chains in terms of marketing mix adjustments.