Shankar_Kannan_CNS 2014

by Venkatesh Shankar and P.K. Kannan

This article appeared in Customer Needs and Solutions.

An important part of the rapidly growing shopper marketing practice is cross-category retail management. In managing two related product categories,
retailers face some important questions: which category should be stocked more? How close to each other should they be stocked in the store (aisle adjacency)? which category should be promoted more often? and when should the two categories be sold as a bundle? To address these questions, we examine how purchases of related product and sub-product categories influence one another, and how the relative aisle locations of two related product categories influence their respective purchases. We consider both extrinsic (aisle location based) and intrinsic (affinity based) cross-category effects. Using aggregate store-level data together with store descriptor and store shopper demographic data, we estimate a simultaneous system of models for two related product categories, soft drinks and salty snacks. We also estimate a system of salty snack sub-category purchase models. We find that both extrinsic and intrinsic cross-category effects are asymmetric, that is, different categories and sub-categories have different effects on one another. We discuss the theoretical and managerial implications of these findings.