Proof: Grocery stores' direct mailing actually does work

Stanford Graduate School of Business, World Business, 22 August 2006, 01:45PM

Whether they're inserts within newspapers or special mailings, weekly ad circulars promoting the latest bargains at your local supermarket are a part of daily life in many countries. But do they actually do what they're supposed to do - tempt you away from your regular store to buy your pizza, detergent and toilet roll from else?

Until now, this has been a very difficult question to answer, even though retailers in the US spend $8 billion on such ads every year, amounting to 2% of their sales. But Seenu Srinivansan, Adams Distinguished Professor of Management at the Stanford Graduate School of Business, and his former doctoral student Anand Bodapati, now assistant professor of marketing at UCLA's Anderson School of Management, claim to have produced the first research which proves that feature advertising does work. They have even shown in which product categories advertising tends to be most successful. Srinivansan and Bodapati claim that at least 10% of shoppers chose their store based on the week's ads.

Same old mantra

The grocers' global battlefield

From category management to customer relationship management

Figuring out how to measure consumer behaviour in this way was a difficult task because most consumers are vague on the issue and available data on grocery sales tell very little about what fraction of shoppers switched from one store to another for their weekly shopping trips - and if so, why they made the switch.

Bodapati and Srinivasan used a complicated mathematical model to discern the effect of feature advertising on store choice. They isolated factors that would drive individual consumer store choice, including the price of goods, preference for certain brands and product categories, and preference for one store over another based on the customer's distance to the store.

The researchers modelled customer purchasing data from five supermarkets located near to one another in a geographical area and combined it with information on how products were priced and featured at the same time.

After examining purchasing behaviour and prices in 19 goods categories, they concluded that 10 per cent of the customers chose stores for major shopping trips based on feature ads they saw in any given week, and that sales of crisps, cookies, pizza and cereal were the items that grabbed them most - a finding that may help to explain another well-known facet of American life: chronic obesity.

Source: The impact of feature advertising on customer store choice
Anand V. Bodapati and V Srinivasan
Stanford Graduate School of Business

Reviewed by: Nick Loney

This article was first published on World Business