Raise Prices or Keep Customers?
MARKETING |

Raise Prices or Keep Customers?

IF ONLY THE CHOICE WERE THAT SIMPLE: A BIG DATA STUDY FINDS THAT RETAILERS SOMETIMES DON'T HAVE ENOUGH INFORMATION TO DEAL WITH CURRENCY VARIATIONS

How do retailers adjust their prices when faced with dramatic currency fluctuations? The answer is given in an ongoing project by Anatoli Colicev, Assistant Professor at the Department of Marketing, with Joep Konings (University of Liverpool Management School) and Joris Hoste (KU Leuven). They have engaged in a two year big data analysis project on Currency Shocks in Emerging Markets: How Does Supplier and Consumer Demand Find Equilibrium?.
 
They turned their attention to Kazakhstan where in 2015 the government devaluated the Tenge overnight and with no announcement, cutting its value by 30% and on an annual basis by more than 50%. These currency shocks have caused uncertainty about the optimal price setting. Do you pass-on the currency shock to consumers by charging higher prices or do you keep prices stable not to lose customers? “We collected daily product label data from one of the largest supermarket chain in Kazakhstan over many years and for different stores. They amount to more that 30 million data points”, professor Colicev says. “We have also collected data on the prices charged by suppliers, because the retailers sell in Tenge, but they buy products in different currencies, primarily in US Dollars, Euros and Russian Rubles”.
 
It turns out that the retailers adjusted the price of some products quite frequently, sometimes on a daily basis, to test consumers’ response. But for other products they did not adjust their prices. So, they took into account that consumers are more responsive to price changes for some products, like gadgets you do not really need, while for other products consumers were not very responsive to price changes, like basic food, which is a necessity. But there were many products for which the retailers did not extract enough knowledge from the data and they ended up using an inefficient trial-and-error approach.
 
“The economic theory argues that firms engage in full rational behavior and therefore they adjust their prices correctly. This is not always the case. We also observed differences based on the store location: the closest to the border had better negotiating power with suppliers”. The overall aim of the project, that will develop in a two-year span and will generate multiple papers, is to understand the evolution of consumer prices in different countries under macroeconomic shocks. The authors will also investigate the behavior of retail companies in Turkey, Russia, and Germany.

Read more about this topic:
Balance of Money in the Past, Present and Future
How Are We Going to Pay in the Third Millennium?
The risks of monetary democracy
Remo Giovanni Abbondandolo (Checkout.com). Making Online Payments Easier
Michele Centemero (Mastercard). Smile at the Camera, Your train Is About to Leave
Solidarity Currencies for Immigrants in Italian Communities
Digital Assets, an Evolving Market
When Paying Online, People Like to Be Anonymous
Blockchains and Their Imitators: Efficiency or Hype?
Bringing Buyers Back to Insolvency Auctions
The Trojan Horse with a Mobile Wallet Inside
 

by Claudio Todesco Bocconi Knowledge newsletter

News

  • Bridging the Divide Between HR and CSR Functions

    A literature review developed a framework for looking at the role that the Human Resource function could play in Corporate Social Responsibility and sustainability  

  • You Can Be Creative Even if Thinking Inside the Box

    Research by Beatrice Manzoni and Federico Magni finds that the combination of conscientiousness and conformity can boost a kind of creativity useful in a working environment  

Seminars

  May 2021  
Mon Tue Wed Thu Fri Sat Sun
          1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31            

Seminars

  • Markups and Inequality
    Macroeconomics - Joint with CREI-UPF

    Corina Boar (New York University) Paper

    Webinar

  • TRADE RULES AND STATE INTERVENTION IN THE ECONOMY IN THE COVID ERA
    International law

    INTRODUCTORY REMARKS LEONARDO BORLINI, Associate Professor of International Law at Bocconi University   SPEAKERS ELEANOR FOX, Walter J. Derenberg Professor of Trade Regulation at New York University School of Law MITSUO MATSUSHITA, Professor Emeritus at Tokyo University, Former Member of the WTO Appellate Body AYA LINO, Associate Professor at Nihon University, College of Commerce, Tokyo THOMAS J. SCHOENBAUM, Shefelman Distinguished Professor of Law, University of Washington School of Law   CONCLUDING REMARKS GIORGIO SACERDOTI Professor Emeritus at Bocconi University and Former Member and Chair of the WTO Appellate Body   Registration online is not required.   Link di collegamento

    Webinar