In a typical store following Hi-Lo pricing, retailers have to
decide how frequent and how deep price promotions should
be offered in order to maximize sales increase. Using our
results, we conduct “what-if” price experiments to help shed
light on this issue. We choose a representative SKU—
Florida’s Natural 64 oz.—from the refrigerated orange juice
category. Florida’s Natural is a popular brand with a share of
about 17 % from not-from-concentrate market and about 10 %
from the total chilled juice market. The regular price is $2.30.
We assume that our store is facing the following three alternative
promotion schemes: (1) price cut at 3 % (priced at
$2.23) over 5 weeks; (2) price cut at 5 % (priced at $2.19)
for the first 3 weeks, then back to the regular price for the last
2 weeks; and (3) price cut at 15 % (priced at $1.96) in the first
week, then back to the regular price for the next 4 weeks. We
assume in each week a typical consumer visits the store with
Florida’s Natural in her shopping list. We abstract away from
the impacts of price promotion on store traffic and brand
switching; instead, we focus on the impacts of promotional
schemes in converting customer-planned purchase to actual
purchase. Therefore, the results below should be viewed as
conditional on store visits and planned purchases.