Endogenous

Promotion Effect on Endogenous Consumption

Presented By:

Adithya Raj Gaurav Kumar Prateek Agarwal Sandeep Maheshwari Surbhi Agarwal Sonam Sharma

Objectives • Endogenous Consumption  Promotion • Relationship between consumption & promotion • Brand Switching & Stock Piling

Type of Research • Empirical ApplicationDerived from experiment and observation rather than theory

Empirical Application Simulation

Purchase and Consumption Change with Promotion

Average Consumption Increases with Promotion

Dynamic Structural Model Model Setup 3.Consumption Utility. -factors- periodic -j=1,2,3….. Brands -What to purchase -Discrete set of available quantities -Utility function VariablesQuantity of production of that particular brand Zt- All other products consumed alpha – benefit of consuming other goods Qj – utility analysis r –degree of risk aversion

Dynamic Structural Model 2. Budget Condition, Purchase, and Expenses. - yt (exogenous budget) - price associated - purchase quantity - inventory available for the brands 8. Dynamic Programming. - Consumer purchase and consumption decisions under promotion uncertainity decisions relating – How much to buy - how much to consume

Dynamic Structural Model 4. Store Visits Visit or no store visit 5. Expectation of Price Promotion endogenous – Inventory exogenous – price & store visits

Dynamic Structural Model

RISK ANALYSIS Alternativ e

Elements of Risk

Probabilit y

Conseque nce

Risk

A

F

20%

10

2

B

G

80%

8

6.4

C

H

50%

4

2

D

I

90%

2

1.8

E

J

20%

4

.8

F C O N S E Q U E N C E S

UNACCEPTABL E

G

ACTION

H

J

I

ACCEPTABL E PROBABLITY (IN %)

Managerial Implications & Research • Applying Model to additional categories • Types of customers which are more likely to consume more • Reasons for promotions

• Study the cross-category effect of promotion on consumption