Price competition between store brands and national brands: determinants of price elasticities for cheese products
Store brands and national brands (Kraft) account for eighty percent of the retail cheese market in the United States. The goal of this study is to estimate brand demand elasticities and reveal factors that determine price elasticities for store and national brands of cheese; more importantly, to provide implications for marketing managers. Data used in this study are store-level scanner data provided by a national supermarket chain in the Columbus, Ohio metropolitan area (CMA). Based on product forms, cheese is classified into five product categories: shredded, sliced, chunk, snack, and miscellaneous. Six stores are included in the data set and these stores are selected from geographic areas that can be described as being populated by higher- and lower-income consumers. A two-stage modeling process is utilized in this study. First, brand demand elasticities are estimated with respect to various store locations, cheese product forms, and package sizes. Second, a meta-analysis is applied to reveal the factors that determine price elasticities of store and national brands. This process involves regressing the estimated price elasticities of store and national brands on the determinants of elasticities: store location, market share, product form, and package size. Both the nonlinear Almost Ideal Demand System (AIDS) and linear approximation AIDS (LA/AIDS) are utilized in the first stage to estimate brand demand elasticities. Given five product categories and two income groups, a total of 20 demand systems are estimated for the two AIDS models. Before estimating the two versions of AIDS model, the unit-root test was initially conducted to confirm stationarity of the time-series variables. This study provides a rich knowledge base for retail store managers and manufacturers to use for maximizing sales and profits. Results from the first stage demand systems indicate that compared with store brands, consumers are very sensitive to national brands price changes for most cheese items even in higher-income areas. The second stage meta-analysis shows that store location, market share, product form, and package size affect price elasticities for store and national brands; moreover, the estimated demand elasticities between AIDS and LA/AIDS models are not significantly different.
School:The Ohio State University
School Location:USA - Ohio
Source Type:Master's Thesis
Keywords:store brands national cheese
Date of Publication:01/01/2004