The Long-Term Impact of Promotions on Consumer Stockpiling Behavior

TLDR

Although brands have increased their promotional spending substantially in many categories over the past decade, panel‑based research into consumer stockpiling behavior has typically assumed that consumers’ purchase decisions remain unchanged. The study develops a varying‑parameter model of purchase incidence and quantity to determine whether the rise in promotions has altered households’ long‑term stockpiling decisions. The model is estimated using over eight years of panel data on a frequently purchased non‑food consumer packaged‑goods product. Results show that long‑term exposure to promotions reduces the likelihood of category purchases on subsequent trips, but when purchases occur, households buy larger quantities, indicating a growing tendency to “lie in wait” for strong promotions, which may harm category profitability.

Abstract

Although brands have increased their promotional spending substantially in many categories over the past decade, panel-based research into consumer stockpiling behavior typically has assumed that consumers’ decisions regarding whether and how much to purchase have remained invariant to this increase. The authors develop a varying parameter model of purchase incidence and purchase quantity to ascertain whether this increase in promotions has affected households’ stockpiling decisions in the long term. The authors estimate the model on the basis of more than eight years of panel data for a frequently purchased, nonfood, consumer packaged-goods product. The results suggest that consumers’ stockpiling behavior has changed over the years. The increased long-term exposure of households to promotions has reduced their likelihood of making category purchases on subsequent shopping trips. However, when households do decide to buy, they tend to buy more of a good. Such behavior is indicative of an increasing tendency to “lie in wait” for especially good promotions. This change appears to have some deleterious ramifications for category profitability.