1. 1 Collaborative Research Forum Choosing Between Everyday Low Price and High-Low Price Strategies in a Duopoly Simon Pierre Sigué, Athabasca Salma Karray, UOIT

2. 2 Outline Context Research questions The Model Assumptions Findings Numerical illustrations Managerial implications

3. 3 Context Increase short-term sales No impact on long-term sales Positive impact, generate repeat- purchase and improve the brand equity Negative impact, decrease long-term sales, and damage the brand equity Promotions: What we know

4. 4 Context Cross-brand effects Category expansion effects Cross-period effects Promotions: What we know

5. 5 Context Promotions as the lowest price chosen randomly from a certain distribution (e.g., Varian 1980, Salop and Stiglitz 1982, Narasimhan 1988) Promotions as a decision variable (e.g., Rao 1991, Banks and Moorthy 1999) Promotional Competition literature

6. 6 Research questions Should the firms always promote? Should the firms change their regular pricing over time? How does the intensity of price competition affect the firms’ decisions and profits in the presence of post- promotional effects?

7. 7 Research questions How do the post-promotional effects affect the firms’ decisions and profits?

8. 8 Period 1Period 2 Firm i’s controls Demand function Firm i’s profit The Model

9. 9

10. 10 Assumptions Firms are rational Firms are intelligent players The rules of the game are common knowledge Firms think strategically

11. 11 Findings: Proposition 1. Both firms should not promote if the following condition is met:

12. 12 Findings: Proposition 2. The first-period and the second-period prices compare as follows:

13. 13 Findings: Proposition 3 When the short-term effect of own promotions is lower than the exclusive own price effect on demand the equilibrium price discount rate increases (decreases) with higher own and competitor’s long-term promotional effects (β2 and δ2) if the expression below is negative (positive).

14. 14 Findings: Proposition 4 When the short-term effect of own promotions is lower than the exclusive own price effect on demand the first-period price increases (decreases) with higher own and competitor’s long-term promotional effects (β2 and δ2) if the expression below is negative (positive).

15. 15 Numerical Illustrations Own long-term promotional effects on the price discount rate for

16. 16 Numerical Illustrations. Own long-term promotional effects on profits and prices for

17. 17 Numerical Illustrations. Own long-term promotional effects on the second- period price

18. 18 Numerical Illustrations. Own long-term promotional effects on profits for

19. 19 Numerical Illustrations. Price competition intensity on prices and price discount rate

20. 20 Numerical Illustrations. Price competition intensity on profits

21. 21 Managerial implications Promotions in form of price discounts are a potent competitive tool, even in the context where consumers are homogeneous and the firms’ decisions are common knowledge The intensity of promotions (price discounting) also depends on the post- promotional effects in the product category

22. 22 Managerial implications The decision to implement either an EDLP pricing or high-low pricing strategy depends on the nature of the product and the long-term effects of promotions High-low strategies are advisable either when the firms’ products are not significantly differentiated or when consumers high tendency to stockpile promoted items

23. 23 Managerial implications EDLP pricing strategies are optimal when consumers are loyal to the brands and promotions are more likely to stimulate future sales When promotions are used, it is optimal to reduce regular post-promotional prices either when promotions damage the brand franchise or very slightly stimulate future sales