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 Application-
Derived 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

Variables-
Quantity 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 Elements Probabilit Conseque Risk

e of Risk y nce

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
UNACCEPTABL
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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