Measuring the effciency of category-level sales response to promotions

In this study, we focus on measuring the e ciency of category-level sales response to promotions across various categories and stores. Our heterogeneous stochastic frontier model allows us to attribute portions of this e ciency to specific characteristics of the stores and categories. Using our full PEM (promotional e ciency frontier) model, we analyze the e ciency of 20 frequently bought categories of a supermarket retailer and apply it to store-category-level data. We find that the average e ciency of category and store sales response across all categories and stores is 84.34%, with low values in categories such as spreads and fresh seafood and high values in categories such as frozen entr es and meat. We find that the variation in e ciency of this sales response can be attributed to specific store and category characteristics such as selling area of store, distance to competition, number of stock-keeping units in the category, and average interpurchase time. Unobserved heterogeneity is captured by the latent class approach that provides support for the existence of three segments. An understanding of the roles played by these characteristics in the e ciency of sales response can aid managers in devising a strategy that maximizes sales.